Individuals looking for assistance with the management of their financial affairs are often advised that they need a “power of attorney.” The notion is not altogether misplaced. Few people want to be the subject of costly guardianship proceedings, involving court filings and medical or psychological determinations. Powers of attorney, now that they can be “durable” and can last through any period of disability, may be the right answer. But, given the increasing litigation over actions taken by attorneys-in-fact or agents, the inquiry should not end there.
Naming someone attorney-in-fact, or “agent” under modern Virginia statutes, creates a fiduciary relationship. A fiduciary relationship implicates duties of care and loyalty by the fiduciary toward property or money belonging to the fiduciary’s principal. Standards of care and loyalty applicable to a fiduciary's dealings are generally higher than in arm's length commercial transactions.
Both principal and agent must be mindful of these considerations. In particular, and although a power of attorney may be designed to be revocable, if the principal were to become disabled, an agency under a power of attorney may in fact result in a longstanding legal relationship, possibly lasting until death. (Death revokes all powers of attorney.) What is more, the majority of financial powers of attorney are drafted to take effect immediately: that is, they are “live” upon the principal’s signing and do not require a prior determination of disability to be triggered.
The alternative to a “live” power of attorney would be to create “stand-by” powers of attorney. Stand-by powers of attorney are dormant, “springing” into force upon the happening of some specified future event. For most individuals, there may be cogent reasons not to create “stand-by” powers of attorney, however. One such reason is that third parties, with whom the agent must deal, may not have a satisfactory way of determining whether the conditions necessary to trigger the agency have occurred. This could negate the agent’s effective ability to serve the principal if doing so requires the cooperation of such third parties. Another reason may be that triggering events can involve an emergency, such as a disabling event, and obtaining the requisite documentation at such a time may be inconvenient or, worse, impossible to obtain.
Because financial powers of attorney frequently are broadly drafted, the intended principal who is considering asking his or her lawyer to draft up a power of attorney should first reflect on the objectives to be served by the power of attorney. The choice of agent under a power of attorney merits equal consideration. If a client has a broader estate plan, care should be given to determine whether different appointments in fiduciaries are indicated—should your trustee be the same as your agent, for instance?
Despite the routine manner in which powers of attorney today may be treated by clients, lawyers and even non-lawyer commercial suppliers of power of attorney forms, clients seeking to create such relationships would do well to give careful thought to the nature and scope of such appointments. Likewise, any agent who undertakes to fulfill such an appointment should consult counsel early to determine the contours of the agent’s duties. The alternative is to be embroiled in costly fiduciary litigation—regardless whether the actions of an agent are ultimately held unlawful.