Generally, people today live much longer than their ancestors. One result of this longevity is that you have a greater likelihood of becoming incapacitated during your lifetime. Incapacity can be temporary or permanent. It can result from illness, accident, or aging. You cannot assume that your spouse, adult children or other family member will automatically have the legal right to take care of your financial matters. A prime example of this is if you have ever tried to call your spouse’s insurance provider. You will often be rebuffed with these words: “I’m sorry, but I can only talk to the insured.”
One of the simplest yet most powerful tools to use in planning for incapacity is executing a valid durable power of attorney. A power of attorney will grant an agent the power to handle your affairs if you become incapacitated. However, in order to be useful, the power of attorney must have been executed at a time when you were not incapacitated. (So do not wait until it is too late!) Authority granted in the durable power of attorney is exercisable with respect to property that you own when the power of attorney is executed, as well as, property acquired later.
The term “durable” is a key component of the power of attorney. If the power of attorney is properly drafted, then it will continue in force even if / when you become incapacitated. However, if it later becomes necessary for a guardian to be appointed in a court proceeding for you, this durable power of attorney will terminate upon the appointment of that guardian.
You have a choice as to when your statutory durable power of attorney is to become effective. It can become effective on the day you execute it, or it can become effective on a later date. This type of power of attorney is often called a “springing” power of attorney. If you choose a springing power of attorney, it will only become effective when you become incapacitated. Typically, if you choose a “springing” power of attorney, a statement similar to this is included in the document: “I shall be considered disabled or incapacitated for purposes of this power of attorney if a physician certifies in writing, at a date later than the date this power of attorney is executed that, based on the physician's medical examination of me, I am mentally incapable of managing my financial affairs.”
The following is an example of a few (but not all) of the areas in which you can give your agent the authority to make decisions for you. On the date you execute the power of attorney, you will be required to indicate in which areas you will give your agent authority.
- Real property transactions;
- Tangible personal property transactions;
- Stock and bond transactions;
- Commodity and option transactions;
- Banking and other financial institution transactions;
- Business operating transactions;
- Insurance and annuity transactions;
- Estate, trust and other beneficiary transactions;
- Claims and litigation;
- Personal and family maintenance;
- Benefits from social security, Medicare, Medicaid, or other governmental programs or civil or military service;
- Retirement plan transactions;
- Tax matters;
- Digital assets and the content of an electronic communication;
The Texas Durable Power of Attorney statute was revised by the Texas Legislature in 2017. Prior to that time, it was not unusual for a financial institution or other third party to refuse to honor an individual’s power of attorney for any reason. Often, it was just simply that it “wasn’t their form.” The revised statute made it much more difficult for third parties to refuse acceptance. In fact, the third party can now only refuse to accept the power of attorney for designated reasons, and then, they must use a certain process to affect the refusal. Following are specific reasons that a third party may now refuse to accept the power:
- The third party has actual knowledge of the termination of the agent’s authority, or
- The third party would not engage in a similar transaction with the agent because the third party:
- has filed a suspicious activity report with respect to the principal or agent,
- believes that the principal or agent has a prior criminal financial history or
- has had a prior unsatisfactory relationship with the agent that involved:
- substantial loss to the third party,
- mismanagement by the agent,
- litigation between the third party and the agent alleging substantial damages, or
- multiple nuisance lawsuits filed by the agent.
There are additional reasons, including that the product or service is not one that the third party offers to any person or that the power of attorney does not authorize that particular activity.
Finally, on several occasions, I have had someone call my office after their loved one died and announce that they have the loved one’s power of attorney. The statutory durable power of attorney dies when you die, and your agent no longer has any authority.
