FEBRUARY 16, 1998 VOLUME 5, NUMBER 33
Three decades ago, all powers of attorney automatically expired when the principal became incompetent. Since the creation of "durable" powers of attorney, they have become ubiquitous.
Before the advent of durable powers of attorney, the only way to gain control of the affairs of an incompetent person was a court proceeding. In most states, those proceedings were called guardianship, and could be initiated with regard to the finances or personal care of the incompetent person.
Today, many states (including Arizona) use the terms "guardianship" and "conservatorship" to refer court proceedings regarding, respectively, the personal care and financial issues of incompetent persons (now usually referred to as "incapacitated" adults). Despite name changes, and at least partly because of protections granted to prospective wards, the court proceedings are too often cumbersome, expensive and invasive.
Frequently family members only become aware of the need for a durable power of attorney after a senior has become incapable of managing his or her own affairs. It is then too late to secure a power of attorney, since the signer must be competent at the time the power of attorney is executed.
Most people would prefer to have established a durable power of attorney to the expense and indignity of guardianship and conservatorship proceeding. There are a number of serious drawbacks to powers of attorney, both for the principal and for the agent. Chief among these:
- Lack of oversight. Conservators must account annually to the court. While this may seem like a disadvantage, it does mean that the risk of loss is significantly reduced. In fact, in most jurisdictions the conservator must post a bond, so that any misdealing (or any seriously inappropriate investment losses) will ultimately be repaid to the principal. With a power of attorney, there is no one to watch over the agent's actions, and no institution in a position to either stop abuses or seek recovery for theft. Unfortunately, theft by family members (often using durable powers of attorney) is an epidemic affecting the elderly.
- Release of the fiduciary's liability. In theory, the agent under a durable power of attorney could be liable to disgruntled family members until after the death of the principal. In most conservatorship proceedings, the fiduciary is released once a year from any liability for older investments or expenditures. Particularly where the senior needs protection from one litigious family member, the conservatorship may provide a valuable limitation of liability.
- Revocability. Too often the person signing a power of attorney will become paranoid (or vulnerable to manipulation) at precisely the time the document is most needed. A family member relying on a durable power of attorney may find that it has been revoked, or that its validity has come into question, just as it becomes necessary to begin using the power. Of course, if the principal is clearly competent enough to revoke the power of attorney, it may not be possible to secure a conservatorship as an alternative.
Although there are problems with powers of attorney, they are undoubtedly less expensive and more private than court proceedings. Careful selection of one's agent can help minimize the problems.