What are the limitations of a durable power of attorney?

When you give someone the power of attorney, there are significant limitations to the agent’s power. First, your agent must make decisions within the terms of the legal document and can’t make decisions that break the agreement, and the agent can be held liable for any fraud or negligence.

The agent also can’t change your will or hand over the control to another person you haven’t designated in the power of attorney document. Since the power of attorney is no longer valid when you pass away, the agent loses control at that time. The exception is if your will designated the person or if the person otherwise gets the authority from the state to handle your estate.

When selecting an agent, you should also consider the risks involved and decide if you need to limit a power of attorney for your situation. When you give someone control over your finances, for example, there’s no guarantee the person won’t sell your property for an undesirable price or make poor investment decisions. Likewise, your agent may not choose the medical facility or care you would have preferred when you’re ill. Also, your agent can end the arrangement at any point if they no longer want the responsibility.

This is a power of attorney that remains valid despite the disability of the principal. Such a power is created by a statute that sets forth the language to be used. There are two forms. One for health care and personal matters and one for property and financial matters. These can be used to avoid guardianship for a disabled person if the person creates them before becoming disabled. Given the cost and limitations of a guardianship, this is a very useful device. The person appointed agent, however, must be trustworthy because they will be acting without court supervision. While anyone can petition a court to open a guardianship and revoke the power, that may be done too late to protect the disabled person’s assets.

The powers of the agent under the basic, durable power of attorney are limited and do not include powers to make gifts or transfers to trusts or certain other things that are often done in estate plans and when changing estate plans as circumstances change. However, these powers can be added to the power of attorney and often are.

Health Care Surrogate

Some people have health care powers of attorney, which appoint an agent who can make health care decisions for the mentally disabled. They may also have living wills which provide they shall not be kept alive by death, delaying medical procedures when they have what would otherwise be a terminal and irreversible condition. Most people, however, do not have these things. If they become mentally disabled, who will make decisions concerning their health care? Who can consent to an operation? A court-appointed guardian could, but it takes time and money to get one appointed. The Illinois Health Care Surrogate Act provides that certain persons can make medical decisions for those who lack decisional capacity as determined by a physician. The order of priority of those authorized to act is:

  • guardian of the person, if any;
  • spouse;
  • adult son or daughter;
  • either parent;
  • adult brother or sister;
  • adult grandchild;
  • close friend; or
  • guardian of the estate.

If there is more than one person with equal authority to decide, decisions are to be made by the majority unless the minority files a petition for guardianship. The court protects medical professionals who act in good faith on the surrogate’s decisions from liability for acting on the surrogate’s directions.

The attending physician must first determine that the patient lacks decisional capacity and made a good faith determination of whether there is a controlling power of attorney or living will and, if not, who and where the likely surrogates are. Once a surrogate has been identified, the surrogate must act only after consultation with the physician and must act as the patient would have acted as best that can be determined. If it cannot be determined how the patient would have decided, or the patient is a minor, the surrogate must act in accordance with the patient’s best interests.

If the surrogate decides to forego life-sustaining treatment, a second physician must determine the patient lacks decisional capacity. Finally, the surrogate must express the decision to both the attending physician and a witness, who must sign documentation evidencing the decision and any discussion concerning it. The attending physician must inform the patient that it has been determined that the patient lacks decisional capacity and who the surrogate is, and any decisions made by the surrogate. Suppose the patient, regardless of decisional capacity, objects to the surrogate or any of the surrogate’s decisions. In that case, the surrogate has no authority to make the particular decision objected to – unless the surrogate is a court-appointed guardian.

The act says the surrogate has the same right as the patient to receive medical records and information and consent to this disclosure. A court can determine any disputes that arise in a guardianship proceeding. Despite this legislation, there are still good reasons to have a power of attorney or living will. First, the power of attorney lets you choose the person who will make the decisions. Second, both let you state your wishes.

Power of Attorney

A power of attorney is a document by which a principal designates an agent to act for the principal. The agent is called an attorney. Unless the agent gives some consideration or has some other interest in the matter, the principal revocable power. The power is automatically revoked by the disability or death of the principal.

Power of Appointment

The Power of Appointment is the right to designate who gets income or assets. For instance, assets may be left on death to a trustee to hold for the benefit of the decedent’s spouse for the spouse’s life and to pay the assets on the spouse’s death to whomever the spouse designates. The spouse has a power of appointment. It is called a general power of appointment because the spouse can designate anyone. If the trust is provided, the spouse could designate only among a certain class of people or institutions, such as descendants or charities. The power would be called a limited or special power of appointment.

Suppose someone has only the right to income from assets for life, then those assets are not usually in their taxable estate when they die, at least if they received the life interest from someone else; however, if they have a general power of appointment over the assets on their death, the assets with being in their taxable estate. If someone has a right to designate who gets income, that can cause the income to be taxable to that person even if the person cannot designate him or herself. For example, trustees often have the right to designate who gets income. However, if their right is limited by an ascertainable standard, the income is not taxable.

The release of a general power of appointment can create a gift for the persons who get the property instead of the holder of the power. Lapse of the power (the time to exercise it expired) has the same effect. However, these rules apply only if the property’s value that could have been appointed exceeds the greater of $5000 or 5% of the value of the assets, out of which the exercise could be satisfied.

Living Trusts

This is a trust created while someone is alive. It is usually a revocable trust – the person who creates it can revoke it or alter it. For this reason, all income is taxed to the person who creates it, and it is in that person’s taxable estate. The person creating it is usually the trustee and gets the income from the trust. When he or she dies, the trust assets usually continue in trust with another named trustee to benefit the surviving spouse and children. Eventually, the assets are paid out of the trust to the children at specified ages.

These trusts are used:

  • To avoid probate.
  • To avoid creditors who cannot file claims against the trust assets. Instead, they can file only against the probate estate. This is good for people in risky occupations. However, protection against creditors exists only after death.
  • To disinherit a spouse and get around his or her right to a statutory share of the probate estate regardless of what a will says.
  • For privacy. The trust assets do not go through probate court where an estimate of the value of the assets is part of the record and where an inventory of the probate assets may be filed and is a public record.
  • To avoid probate of out-of-state real estate. If you own real estate in another state, the probate of your estate in that state is often required in addition to the state where you live. By holding title to that real estate in trust, you avoid the probate. If you are a trustee, the title passes to a successor trustee on your death by terms of the trust and not by virtue of your will or the probate act of the state in question.

What Happens Without an Estate Plan

The state dictates who gets your property and who will be the administrator (manager) of your estate and who will be a guardian of your children if your spouse has already died and who will be your guardian if you are disabled. If you die without a will survived by a spouse and children, the spouse gets one-half, and the children get the rest. There are no exceptions.

Guardianships are expensive and time-consuming, and if money or property is involved, court approval is needed for everything. All your property must be collected and sold unless all the beneficiaries agree to keep it. The family business or farm must be sold. There is no provision for professional management of your estate.

There will be a probate of your estate if it exceeds $100,000. This is a court determination of who is entitled to your property and supervision of its collection and distribution. Taxes may be a lot higher.

What is the role of the Trustee?

A trustee is someone who holds legal title to assets or property for the benefit of someone else. The trustee can be an individual or an entity such as a bank trust department. The trustee is responsible for managing the property and paying it out according to the terms of the trust. A trustee should be someone who has the requisite skill and time to manage the assets and investments.

The trustee should also be trustworthy. It also helps if the trustee knows the beneficiaries. Professional trustees are often selected to act because of their ability to manage investments. Often an individual is appointed to act in conjunction with the professional to add insight into the beneficiaries. Professional trustees charge for their services, which means the trust must be large enough to pay the fees. Trustees are subject to the supervision of the courts, and their duties can be enforced by legal action.

Disclaimer: The site is for educational purposes only, as well as to give general information. This blog is not intended to provide specific legal advice. The site should not be used as a substitute for legal advice from a licensed professional attorney in your state.