HOW DURABLE IS THE

DURABLE POWER OF ATTORNEY?

Prepared for the 1996 Symposium of

The National Academy of Elder Law Attorneys

by

Russell E. Haddleton, Esq., CELA

The durable power of attorney is a wonderful device, but it has limitations. I offer some comments about those limitations and suggestions as to how to make the durable power of attorney more useful.

1) Boilerplate may be OK, but cut it to fit the boiler, and weld it with care. There is no sense in reinventing the wheel. We all have our favorite form of documents. They are familiar, and sort of feel warm and cuddly and make us proud of the intellectual horsepower we used to create them. I have attached a copy of my carefully crafted, pre-drafted durable power of attorney, also known as boilerplate. You will probably have your own, which may be better, but since I am the discussion leader, you are stuck with me, and my boilerplate, for the next hour and thirty minutes. I do suggest that if you are going to get the best results from the boilerplate, work with it to make sure that it fits the needs of each client - sometimes it is satisfactory as it comes off the hard disk, but often you should cut it to fit.

2) Do you need a general power of attorney, or is a limited power sufficient? Maybe you intend the power to be used for a single purpose, such as funding a trust. If so, say so; the simpler the power is, the more likely you are to have it accepted.

3) Must the attorney in fact be all powerful, or should you divide the power among several persons? If the client's interests are diverse, maybe several persons should be given powers to deal with limited parts of the client's affairs. For instance, one person might be given authority to deal with certain items, such as the sale of real estate, and bank might be given power to fund a trust or manage investments.

4) Should you give the document to the client, or to the donee of the power? Sometimes not. Relations between clients and persons to whom they give durable powers sometimes change, and revoking a durable power of attorney can be an annoyance, and, under some circumstances, could be impossible without recording or otherwise widely publishing a revocation, which would be embarrassing to the client. Often the client will feel more comfortable if you keep the signed originals, furnishing the client and/or the donee of the power with an unexecuted counterpart, marked to indicate that the originals are in your office.

5) If you keep the signed counterparts, draft an escrow agreement. A statement, signed by the client and by you, in which you state the terms under which you hold the counterparts, is recommended. A simple form might be: "I agree to hold the counterparts of your durable power of attorney, and will release them to the attorney in fact only if I receive a notification from a physician, which I am able to verify to my satisfaction, to the effect that you are unable to carry out your affairs." You might want to add "or if I otherwise determine that you are not competent to act on your own behalf."

6) Children will put beans in their ears. Carl Sandburg, in the "The People, Yes" said: "If you tell children not to put beans in theirs, children will put beans in their ears." If you tell clients not to misplace durable powers, clients will misplace durable powers. If you have a notarized counterpart, you can always take it to the registry of deeds or other recording office, record it, and obtain certified copies.

7) Particularity is really good stuff, and everybody should have some. In some jurisdictions, such as Florida, granting the power "to sell all of my real estate, wherever owned, upon such terms as my attorney in fact shall determine" will not meet the title standards. In other jurisdictions, even if the title standards don't require it, the attorney for the purchaser or the lender may not find a conveyance under the non-specific power to be sufficient. List the address and book and page of the real estate with particularity or attach a copy of the deed and incorporate it by reference.

8) Do it again as often as you reasonably can. In our office we try to re-execute durable power of attorney at least every two years. Banks and other institutions like durable powers of attorney which have been executed recently. They do not like durable powers of attorney which they consider "stale". The argument to banks that whether the durable power of attorney is "stale" is not relevant, since the objective is to put the durable power of attorney in a file, not to eat it, does not work very well. We plan to consult with members of the medical profession so that we can, from time to time, awaken any clients who happen to be in comas or in a permanent vegetative state in order that they may re-execute their durable powers of attorney and keep the banks happy.

9) If the power is to be used for gifting, say so. Unless the durable power or attorney specifically authorizes the making of gifts, when your client becomes a decedent, the Internal Revenue Service will claim that the attorney in fact had no power under local law to make gifts and will seek to include the donated property in the estate for federal estate tax purposes. In most cases and in most states, the position of the Internal Revenue Service will be correct.

10) If the donee of the power is to be able to make gifts to himself or herself, say so. An attorney in fact is a fiduciary. A fiduciary may generally not properly exercise his or her powers to benefit the attorney in fact, unless the instrument specifically grants that power.

11) If you want the donee of the power to be able to make gifts to himself or herself, should the power be limited? If you authorize the holder of a power to make gifts without limit to himself or herself, you have given the holder of the power a general power of appointment, and if he or she predeceases the principal, and the IRS is aware of the existence of the power, the Internal revenue Service will argue that all of the property of the principal which might have been subject to the power if it had been executed is includible in the estate of the holder of the power. In some states the law is to the contrary, but if you are concerned that the attorney in fact may die before the principal, and that the Service may find out about the power, it is easy to limit it, as, for example, "to make gifts to himself and others whom he knows to be the natural objects of my bounty; such gifts to himself or others not to exceed $10,000 per donee per year or such other amount as shall be exempt for transfer tax purposes but not to exceed $20,000 per year in any event." We presently think in terms of giving away assets to save transfer taxes, but suppose that the transfer tax is abolished entirely - would you client still want gifts to be made? You might also want to consider a provision authorizing the attorney in fact to request funds from the trustee of a revocable inter vivos trust in order to fund gifts - under present law if the trustee made gifts to reduce the estate, the IRS might seek to include them in the estate for tax purposes; this would not apply to gifts by an attorney in fact, unless the Service were to claim that there was a step transaction, which is stretching fairly far.

12) Maybe spring has sprung, but you can't prove the fat lady has sung. All of which is to say, don't sue springing powers. See the discussion in the next paragraph.

13) A durable power of attorney, however exquisitely drafted, is only as good as its acceptance by the lowest-echelon clerical person to whom it is presented. If you have a durable power of attorney which is subject to some condition, you will have trouble having it accepted, and its value will be limited, since the person to whom the power is presented may be unable to determine that the contingency has occurred. This is another argument for the limitation of the power, if you can comfortably do that.

14) If you play in someone else's yard, they make the rules. Brokerage houses almost invariably have their own forms of durable power of attorney. There is certain language, which is incorporated in the draft durable power, which in theory should be accepted by all brokerage houses. In practice, it sometimes does not work this way. Ask the client for the names of brokerage houses with which the client has accounts, and have the client execute those forms in addition to your form of durable power.

15) It takes two to tangle. Sometimes the client will want to name two people as attorneys in fact, to act concurrently. For example, the client might want to name both of the client's children as attorneys in fact. This is done so that neither of them will be unhappy. This does not work. In fact, both will be unhappy. Trying to produce two attorneys in fact at the same time and at the same place in order to exercise a power of attorney is practically impossible. If necessary, split the duties, and have two separate documents.

16) If the durable power doesn't have the provision you need, don't despair, repair. If your client is incompetent, and the durable power which was earlier executed (prepared, of course, by another, less far-seeing counsel) does not contain the provision necessary to enable the attorney in fact to carry out a particular act, in many jurisdictions you can undertake a temporary guardianship, seek authority to amend the durable power, amend the durable power, then terminate the guardianship. For instance, suppose that you want to amend a trust which the client has earlier executed. You could proceed under the estate planning provisions of guardianship law in most states; this takes time and is expensive, requiring the appointment of a guardian ad litem, etc. If, instead, you can obtain a temporary guardianship, with authority only to amend the durable power of attorney, you may be able to amend the durable power to include the powers to amend the trust. You can then terminate the guardianship, and accomplish the estate planning objectives by amending the trust, without having to seek the approval of the court.

17) Watch out for wild beasties, or something. If your client may be going to another jurisdiction, or perhaps has residences in more than one state, check the law in the other jurisdiction to make sure that the durable power has any special provisions it might need. A valuable resource is Durable Powers of Attorney and Health Care Directives, edited by Albert L. Moses, published by Shepard's McGraw-Hill, Inc., PO Box 35300, Colorado Springs, Colorado 80935-3530.

Conclusion. I hope that these suggestions have been helpful. I will appreciate receiving your comments as to problems which you have with the use of durable powers of attorney, ways in which you have overcome those problems, and specific provisions which you find to be helpful. I will share your comments with other attorneys across the country and will try to pass on their comments to you. Please write to me at Haddleton & Associates, PC, PO Box 1298, Hyannis, MA 02601.