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Publications : Bar Bulletin

Editor: W. Patrick Tandy

May, 2004

 

Durable Powers of Attorney: Value Added

By Cheryl Chapman Henderson

The most valuable and cost-effective estate planning tool that you prepare for your client is the durable power of attorney (DPOA). By DPOA, your client can choose in advance who will think, speak, act and govern his or her affairs when (s)he is no longer able to do so. A well-prepared and managed DPOA can singularly affect and shape your client’s well-being and quality of life when (s)he is most vulnerable and least able to make his or her own life choices.

The DPOA can be comprehensive in scope and can affect all phases of your client’s financial, business and transactional affairs. Yet despite its critical value, too often it’s become the stepchild of the estate-planning arsenal. We as practitioners may prepare them generically with little forethought or design. Our clients may regard them as necessary “paper” which could conceivably be purchased from the office-supply store or downloaded from a do-it-yourself legal program.

The only formal requirement of Maryland’s DPOA statute is that the DPOA be in writing. MD Real Prop. Code Annotated §4-107 requires that the DPOA be executed with the formalities of a deed where used to convey interests in real estate. There are few Maryland cases construing DPOAs.

Here are some practical suggestions for making sure that your client’s DPOA works when it is most needed – when your client is incapable of making life-affirming decisions.

  1. Choice of agent makes or breaks the most carefully-tailored DPOA. The most important qualities to look for when selecting an agent are integrity, humility, strength of will and devotion to the interests of the principal. With those qualities, any shortcoming in financial ability and business acumen is easily overcome. Without those qualities, even a financial genius can spell disaster.
  2. Assess how the DPOA is likely to be used. Examine the client’s assets. Do they include stock portfolios? Pension funds? Are businesses involved? Also, examine the functions that the agent is likely to carry out, such as to transfer assets, settle tax disputes, engage in litigation, borrow funds or make gifts. This analysis determines what steps need to be taken after the DPOA is executed.
  3. Clearly advise your client on the importance as well as the realities of the DPOA. On one hand, without a DPOA or an improperly prepared one the client may be forced into the expense, humiliation and intrusion of guardianship proceedings. On the other hand, an unscrupulous agent can leave the client exposed to vulture-like exploitation. In between, there are third parties who refuse to acknowledge the agent’s authority. Encourage the client to take ownership of the DPOA so that (s)he can be on guard for potential problems.
  4. Prearrange the relationship between third parties and the named agent. Don’t wait until your client’s incapacity to test the DPOA’s acceptability with third parties. Banks are notorious for not recognizing the DPOA. The federal government prefers to recognize representative payees over agents in the paying out of benefits. An effective way of prearranging the relationship is through a letter instructing the third party to recognize the agent’s authority and requesting if it doesn’t to advise what steps are required.
  5. Anticipate other jurisdictions where the DPOA may be used and make sure yours complies with their requirements. For example, anyone with a client who owns real estate in the District of Columbia must be aware of D.C. Code Section 45-601 which requires that the DPOA contain specific language in a specified location and format. Without satisfying those requirements, your client’s agent cannot transfer a recordable interest in D.C. real estate.
  6. In case of a client that does not want to give the agent unbridled authority, consider the limited DPOA and discuss its usefulness. Also, a general DPOA can be lengthy. A limited DPOA may be a page or two. The costs of recording real estate, for example, can be reduced considerably with a limited DPOA. Consider using both a general and limited DPOA where appropriate.
  7. The gifting of assets can be a useful tool in estate planning. Yet there is no implied authority for an agent to make gifts. If gifting is what the agent may be doing, make sure that power is expressly spelled out in the DPOA.
  8. The practitioner’s goal is to craft a DPOA for the client that is effective and accepted when and where needed. Not to be overlooked is the importance of presentation. The well-prepared DPOA should be “user-friendly” for not only the client but also for the agent and the third party relying on it. It should look good, as if it were tailor-made for the client. Finally, it should bear all of the solemnity that is associated with important legal documents: be witnessed and notarized.

A more hands-on approach to designing and preparing the DPOA can enhance both its value to the client as well as its value to the service the practitioner provides.

Cheryl Chapman Henderson is the founding member of the law firm of Cheryl Chapman and Associates, LLC, where she concentrates her practice in the areas of estate planning, elder law, probate and real estate.

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Publications : Bar Bulletin: May, 2004

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