Ep. 16: Demystifying General Power of Attorney: Legal Insights for Effective Planning

Hello everyone, my name is Attorney Ted Gudorf. Welcome to The Repair The Roof podcast. This name comes from President Kennedy’s famous quote, “The time to repair the roof is when the sun is shining.”

In this show, we help individuals and families learn more about all things estate planning and elder law. This is episode 16 – General Power of Attorney. Today we are going to talk about a critical document that everybody should consider having as a part of their overall estate plan. First of all, let’s make sure that we understand what a general power of attorney is and then we will get into the details. You know, today is a beautiful Saturday morning here in Clayton, Ohio and I am about ready to go to my condo in Florida for some R&R time, but before we do that, I wanted to give you some insight on a critical document and just in the last 30 days, I have had to deal with multiple issues surrounding a general power of attorney. So this is really critical that we understand both the benefits and the cons and the risk of relying upon this kind of legal document. Alright, so what’s the difference between a general power of attorney and a healthcare power of attorney? Is there any overlap at all? Well, while the overlap is fairly minimal, it is important to understand that as a general rule, a general power of attorney will cover all financial matters, that somebody wants to delegate to an agent. Whereas a health care power of attorney is going to delegate medical decisions to an agent called a health care agent and typically that healthcare power of attorney will be all medical matters.

Now, in a healthcare power of attorney, as a general rule, the agent’s job does not get triggered until two physicians say that the individual can no longer make medical decisions for themselves. On the other hand, with the general power of attorney, oftentimes, we are going to make it effective immediately, and not require two physicians to sign off on it indicating that the person has become incapacitated. However, as an initial matter, we do have that option and we ought to discuss with our planning attorney, when do we want the general power of attorney to take effect? Well, most of us would want it to take effect once we become incapacitated, but as we are going to discuss here today, there are a significant amount of obstacles if we choose what we term in the business a springing power of attorney that requires a physician evaluation, what could possibly go wrong? Well, it’s virtually impossible to find an attending physician or a primary care physician who is willing to drop everything and come over and evaluate an individual and declare them to be incapacitated, such that the agent can then conduct business under the power of attorney. So, our recommendation is that you not create a springing power of attorney but instead, pick wisely and in particular, if you combine it with a trust, whether it be a revocable or irrevocable trust, if you combine it with a trust, the aspects over which the agent will have control over will be significantly limited, because the trustee of the trust will have control over the bulk of the assets and within the trust, there is a different mechanism typically other than getting a physician signature that allow the successor trustee to act in accordance with the terms of the trust.

So, number one, the first issue, understand the difference between the general power of attorney and the healthcare power of attorney. Number two, make a determination whether it is going to be a general power, or a limited power. It is possible not to give somebody a general power, we use limited powers of attorney all the time. A typical example of a limited power of attorney would be, let’s say, you want to give your spouse or child the ability to go to the Clerk of Courts Title office, to change the title on the card, or even simpler, go to the Bureau of Motor Vehicles to change or get your license plates, then you can sign off on a limited power of attorney that simply authorize your agent to get your license plates and there are no other powers granted, within that limited power. You could grant somebody a limited power to be able to show your real estate or to write checks on your bank account and give them no other powers. So occasionally, we will use limited powers. More often than not, though, when we are doing a comprehensive estate plan, we are going to talk about a general power of attorney. Now, one of the things we have to talk about, unfortunately, most general powers under Ohio Law do not include what we call hot powers, or special instructions and we are going to talk a little bit about that later in terms of what is the difference between a limited power of attorney, a general power of attorney and then you could almost call it a Super General Power of attorney, that is a general power of attorney that has hot powers included and that is what you are going to learn is really the key.

Now just remember here in Ohio, we adopted the Uniform Power of Attorney Act only 10 years ago, in 2012 and that gave us some significant statutory guidance over our powers of attorney. Prior to that it was primarily governed by the common law and that created a whole host of court cases and decisions that caused some confusion. So the Uniform Power of Attorney Act was designed to bring some clarity and I think, overall, it has brought some clarity over the last 10 years. But there are still a lot of controversy over these powers of attorney. First of all, with respect to its formation, generally speaking, we want the general power of attorney to be in writing. We want it to be signed by the person granting the power. It does not have to be signed by the agent who’s being designated to be able to handle things on behalf of the primary person. We are going to notarize that document. It does not require any witnesses other than that notary. So the simple concept is proper formation simply includes it to be in writing to be signed by the person granting the power and it needs to be notarized. Now if it is going to be utilized to transfer real estate, don’t make the mistake and not record the power of attorney prior to the transfer. Ohio law requires that the power of attorney be recorded in the recorders office, to the extent is going to be utilized to transfer real estate. Typically, within the first paragraph or two of the general power of attorney is where we are going to designate the agent and as a general rule, we are going to list them by their legal name, their address, and their phone number. You can designate anyone who is 18 years or older who is competent to be your agent. It’s a common practice to also want to designate a successor agent or even multiple successor agents who generally will hold those same powers in the event that first person designated either declines or is incapacitated or dies. So we always want to designate a successor agent.

One of the things that we should really focus in on where I see a lot of mistakes on the powers of attorney that are prepared by general practice lawyers is the area where we talk about the grant of authority. You see, Ohio law provides for a descriptive listing of the grants of authority that you can incorporate into a power of attorney. Those provisions can be found in Revised Code section 1337.21 through 1337.64. Now, if your power of attorney incorporates by reference, these statutory provisions, then you don’t have to go into detail and list everything that is included, for instance, with respect to dealing with real estate, or bank accounts. Instead, what we do is we incorporate what the statute says that the agent can do for all of these various areas. The various areas are oftentimes listed on the power of attorney form, as I indicated, and the power of attorney form can simply say real property as defined in Revised Code Section 1337, etc. We can talk about stocks and bonds as defined in the statute. We can talk about insurance, we can talk about annuities, we can talk about retirement plans, we can talk about taxes, and simply say, as defined within the statute, our state legislature has done a really good job of taking all of these categories, and setting forth a detailed description of what is included when we list those topics in the power of attorney. So the more common approach, so that you don’t miss anything, is to take the standard power of attorney, and simply initial that my agent has authority with respect to all preceding subjects, as defined within Ohio Revised Code section 1337.21, through 1337.64 and that makes it very clear and lets everyone know that we are following the statutory definition. Now, in addition to the general grant of authority, where we are incorporating the statute, Ohio law says that if we want our agent to have what is commonly referred to as hot powers, hot powers have to be specifically identified and listed within the document. In other words, it can’t just incorporate by reference the definition in the statute, it has to specifically set forth permission for the agent to be able to do these things. Now, I am going to tell you that more likely than not most powers of attorney that have been created by general practice lawyers do not contain hot powers and I think that’s unfortunate. In fact, many of the powers of attorney that I see even drafted by more experienced estate planning attorneys omit this critically important. Oftentimes, when a client comes to me where I haven’t done the planning for them, the very first thing if I am going to be doing elder law planning for them, and maybe applying for Medicaid for them, the first thing I want to do is I want to make sure that I review their existing General Power of Attorney. First of all, I want to make sure it was properly signed and notarized. I want to make sure that we know and understand who the initial agent is, who’s the successor agent. I also want to know what powers does the individual have? Did we incorporate the statutory references or was there some effort by the lawyer to list all of the areas where the agent has authority and furthermore, did the attorney make sure that we have hot powers incorporated within the document? Unfortunately, more often than not, they are not included and so we oftentimes will have to do a new power of attorney that is properly drafted, that includes these hot powers and obviously, we can only do that if the individual signing the power of attorney still has capacity and sometimes that’s a problem and we have to go to probate court and open up a guardianship, which is really unfortunate. Alright, so what are these hot powers? What do they include? Well, first and foremost, if you want to grant your agent the ability to create revocable or irrevocable trust, or to amend a trust, or to exercise a power of appointment, it has to be specifically provided for under the special instructions. Number two, if you want your agent to be able to make gifts out of the trust, for planning purposes, it has to be specifically identified in the scope of authority for the gifts should be clearly delineated, is it going to be limited to the annual exclusion gifts or can it be as broad as making any gifts that the agent deems to be in your best interest? What about the ability to change beneficiary designations, or change survivorship rights on various assets? Again, that is a hot power. If we are going to grant the agent the authority to do that, it has to be specifically identified and referenced within the power of attorney that is signed. One of the things that oftentimes is missing is an indication that the agent who oftentimes has either a spouse or a child who wants to be able to transfer assets to themselves for the purpose of say Medicaid planning can’t do it unless there is a hot power called self dealing identified within the document. I guess technically, it’s not a hot power, but it is a separate paragraph that authorizes the agent to self deal. That is, the person serving as agent under the power of attorney would have the ability to transfer a bank account to themselves as a part of an overall Medicaid plan. Self dealing is critically important if we want to create trust, and have the agent perhaps serve as trustee of a near revocable trust. Again, for instance, we want them to serve as trustee of a trust, because we want to hold the assets in the trust as a part of our Medicaid planning or our VA benefits planning. So it’s critically important that we make sure that we understand what powers we want to grant somebody. Oftentimes, the POA that I see out here are inartfully drafted and not enough thought has gone into trying to figure out what do we really needed to do.

Another aspect of a power of attorney is totally separate from granting powers to an agent, but it includes nominating someone, typically the agent to be our guardian if for some reason, we end up needing a guardianship. Sometimes we need a guardianship because the financial institution will not honor the power of attorney. So let’s talk a little bit about how can that possibly happen? Here we are, we have a general power of attorney. It was created by a lawyer. It was signed by the primary person wanting to grant the authority. It’s properly notarized. It incorporates the Ohio statute, it grant specific powers. It even includes hot powers. It names a guardian and lo and behold, when we go see the lawyer, it turns out we have to go get a guardianship anyway, because the power of attorney is not going to be recognized by the financial institution.

Well, remember we do live in the United States of America and there are 50 different states and these uniform laws while intended to be making the law uniform throughout the country, each state can do their own thing and modify the Uniform Law as they wish and that has happened here in Ohio. The Uniform Law said that if a financial institution did not have good cause to not recognize a power of attorney, it could be fined by a court for failing to recognize it without good reason. That provision was removed when the Ohio legislature adopted the Uniform Power of Attorney Act in 2012. So here in Ohio, if a financial institution for whatever reason, chooses not to recognize your power of attorney, you are going to have to go get a guardianship and typically, what you are going to want to do is have the agent who you designated be the person who gets to be your guardian.

Now, why would a financial institution or an insurance agent or a title company not recognize your power of attorney? Well, let me tell you some of the things that they have tried to persuade me of. Some of them have a policy that says, if the power of attorney is more than two years old, simply by the age of the document, they’re not going to recognize it and under Ohio law, because there is no penalty for them failing to recognize it, there is not much we can do. I have seen other circumstances where the power of attorney does not include indemnification language indemnifying the financial institution in the case they get sued for following the power of attorney. I have seen financial institutions reject the power of attorney and not be willing to honor it. Another situation, I have had a title company, who has refused to recognize the agent’s ability to transfer real estate if the power of attorney itself did not specifically identify the real estate within the document, and very few do. So there are a lot of issues out here with financial institutions, particularly here in Ohio, not being willing to recognize these powers of attorney, again, if they are older, or if they don’t reference specific real estate, so we have to be aware that just because we have a power of attorney does not necessarily mean that the financial institution or the bank has to recognize it. For that very reason, it is our firm’s position that we want to limit the use of power of attorneys as much as possible. How do we do that? Well, one way we do that is by having the bulk of our assets that are owned by a trust. Why does that matter? Why does that work? Well, the reason is, is when we create an inter vivos trust, that means it’s a trust that’s created during your lifetime. You are transferring assets into that trust, oftentimes you are naming yourself as trustee, if it’s a revocable trust, or a family member, if it’s an irrevocable trust, but you are transferring those assets into the trust while you’re alive and well, not when you’re incapacitated. On the other hand, if you don’t have a trust, and you are fully relying upon a power of attorney, we are going to be having the agent transfer assets at a time when you’re incapacitated and that is the concern that the financial institutions have, we never have a problem with a trust in the transfer of power from the primary trustee to the successor trustee because we are not changing assets. We have already done that with respect to the trust. We are simply designating a new person to manage the trust, never ever have a problem in that regard. On the other hand, we regularly and routinely do have problems following having financial institutions and title companies follow these general powers of attorney. Obviously, we would rather have the general power then not have it, but we want to limit its use and the primary way we do that is we transfer the bulk of our assets into a revocable or an irrevocable trust. Having said that, there is still one substantial asset that we are all aware of that we cannot transfer to a trust and that is our retirement account. So with respect to our retirement account, it is extremely important that we have a general power of attorney. Now one of the things that I will oftentimes recommend to my clients is if we have a trust based comprehensive plan, which includes a General Power of Attorney for the retirement accounts, I will oftentimes make sure that we submit the general power of attorney to the custodian who is holding our retirement accounts, to make sure that they are willing to recognize it. I will say this, there are times when they will not recognize it, and instead insist upon their form to be filled out and so we want to make sure we fully understand whether or not that power of attorney is going to be recognized. As a general rule, though, we would do want to have this general power of attorney, we do want to make sure that it is properly formed, we want to make sure that we have designated a proper agent, we want to grant them specific authority, we want to add those hot powers to it. We want to nominate a guardianship, we want to authorize self dealing and as a general rule, we want to make it effective immediately and if we are going to use it to transfer real estate, we have to make sure that it gets recorded. Hopefully, this gives you some clarity, some confidence and a better understanding of how we will utilize a general power of attorney with respect to our overall estate plan. Thank you for being with us today. Have a great weekend.

Until our next session, just remember the time to repair the roof is when the sun is shining. To get started with your estate plan, you can go to Gudorflaw.com/getting started. For a free copy of our recently published book called The Ohio Estate Planning Guide, go to Gudorflaw.com/book.