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The Problem with Springing Powers of Attorney

                We rarely use springing powers of attorney in our office.  A recent case with a client who has one reminds me why.

                George’s son, Jim came to us because his dad is in a nursing home.  He will need to stay there on a long term basis.  George has some money in several accounts but within 6 months the money will run out and we’ll need to apply for Medicaid.

                George has a power of attorney which designates Jim as his agent.  It was prepared by another attorney several years ago, however, until now George handled his own finances so Jim never needed to use it.

                When I examined it, I discovered that it is not an immediate power of attorney but instead is a springing power of attorney.  The difference between the two is important.  An immediate power of attorney is one that allows the agent to act for the principal as soon as the document is signed.  That doesn’t necessarily mean the principal wants the agent to act for him right away.  The principal can continue to act for himself after signing the power of attorney until such time as he no longer has capacity.

                A springing power of attorney, on the other hand, provides that the agent may only act when the principal becomes disabled or incapacitated.   The problem in practice, however, becomes how to define “disabled or incapacitated” and who makes that determination.  The document itself can define these terms but if it doesn’t, New Jersey law provides that a principal is considered under a disability if he is unable to manage his property and affairs effectively.

                That leaves the issue of who makes that determination.  In George’s case the POA was presented to the bank along with a statement from George’s doctor stating her opinion that George is under a disability.  The bank referred the documents to its legal department.  A back and forth then ensued regarding the precise language the bank required to honor the POA.   This process held up our efforts to have Jim spend down his dad’s remaining assets and gather the records we need to file for Medicaid.  Had George signed an immediate POA we could have avoided the back and forth about capacity, even if Jim was just now acting as agent for the first time.

                As I stated at the outset we rarely use springing powers of attorney for exactly this reason.  The hurdles we need to clear at what is usually a time of crisis makes this POA less than desirable.  So what is the upside to using one?

                The principal may only want the agent to act when he becomes incapacitated.  Had I met with George at the time his POA was drafted I would have asked him whether his hesitation about signing an immediate POA was because he didn’t trust Jim to wait to act until he was ready to allow him to or whether instead, he was responding emotionally to the idea that he doesn’t want to lose control.

                If it is the latter, then signing an immediate POA and having George hold it until such time as he was ready for Jim to begin acting would have addressed his concern.  If it is the former, however, then the question I would have pointed out to George, “if you are truly worried that Jim will act when you don’t want him to, then maybe you should choose someone else who is more trustworthy”.