Make Sure Your Power of Attorney Complies with Federal Privacy Law

A power of attorney (POA) and a health care proxy are two of the most important estate planning documents you can have, but in some instances they may be useless if they don’t comply with the federal privacy law.

A POA allows someone you designate (your “agent” or “attorney-in-fact”) to make decisions for you if you become incapacitated. A health care proxy specifies who will make medical decisions for you. For these documents to be effective, your agents may need to be able to access your medical information. However, medical information is private. The Health Insurance Portability and Accountability Act (HIPAA) protects health care privacy and prevents disclosure of health care information to unauthorized people. HIPAA authorizes the release of medical information only to a patient’s “personal representative.”

HIPAA can be a problem especially if you have a “springing” power of attorney. A springing POA doesn’t go into effect until you become incapacitated. This means your agent doesn’t have any authority until you are declared incompetent, but, under HIPAA, the agent won’t be able to get the medical information necessary to determine incompetence until the agent has authority.

To make sure your agent doesn’t get caught in this “Catch-22,” your POA and health care proxy should contain a HIPAA clause that explains that the agent is also the personal representative for the purposes of health care disclosures under HIPAA. You should also sign separate HIPAA release forms that explain what medical information can be disclosed, who can make the disclosure, and to whom the disclosure can be made.

Contact your attorney to make sure your POA and health care proxy do not conflict with HIPAA.

Three Changes You May Want to Make to Your Estate Plan Now Due to the Pandemic

You may need to reevaluate some elements of your estate plan in light of the coronavirus pandemic. There are unique aspects of this crisis that your current estate planning documents may not be suited to handle.

The language in some estate planning documents that is fine under normal conditions may cause additional problems for you and your loved ones if you fall ill during the pandemic. Look over the following documents to see if they may need updating in order to fulfill your wishes:

  • Living will. A living will is a document that you can use to give instructions regarding treatment if you become terminally ill or are in a persistent vegetative state and unable to communicate your instructions. The living will states under what conditions life-sustaining treatment should be terminated. Many living wills contain a prohibition on intubation, which can be used to prolong life, even in a vegetative state. However, in the case of Covid-19, intubation and placement on a ventilator can actually save a patient’s life (although many patients who are intubated still die). If your living will contains a blanket prohibition on intubation, you may want to rethink that.
  • Durable Power of Attorney. A power of attorney (POA) allows you to appoint an agent to act in your place with regard to financial matters. A POA can be either current or springing. A current POA takes effect immediately, usually with the understanding that it will not be used until and unless you become incapacitated. A “springing” POA only takes affect when you become incapacitated. The problem is that springing powers of attorney create a hurdle for the agent to get over to use the document. When presented with a springing power of attorney, a financial institution will require proof that the incapacity has occurred, often in the form of a letter from a doctor. In the current chaotic environment of the coronavirus pandemic, getting a letter from a doctor will be difficult, if not impossible. Requiring your agent under a power of attorney to seek out a doctor to get a certification of incapacity will only add to their tasks and delay their ability to act on your behalf.  Consider changing the POA so that it can take effect immediately if needed.
  • Health Care Proxy. A health care proxy allows you to appoint someone else to act as your agent for medical decisions. It will ensure that your medical treatment instructions are carried out. Without a health care proxy, your doctor may be required to provide you with medical treatment that you would have refused if you were able to do so. Usually, the person who is appointed to act as your agent would confer with the doctors in person. That will likely be impossible during the coronavirus pandemic because family members often are not allowed in the hospital with sick patients. You need to make sure your health care proxy contains a provision that expressly authorizes electronic communication with your agent.

Consult with your attorney to make sure these documents and your other estate planning documents express your wishes during this time.

Estate Planning Is Essential for Unmarried Couples

While estate planning is important for married couples, it is arguably even more necessary for couples that live together without getting married. Without an estate plan unmarried couples won’t be able to make end-of-life decisions or inherit from each other.

Estate planning serves two main functions: determining who can make decisions for you if you become incapacitated and who gets your assets when you die.  There are laws in place to protect spouses in couples that have failed to plan by governing the distribution of property in the event of death. If you do not have a will, property will pass to your spouse and children, or to parents if you die without a spouse or children.

But there are no laws in place to protect unmarried partners. Without a solid estate plan, your partner may be shut out of the decision making and the inheritance. The following are the essential estate planning steps that can help unmarried couples:

  • Joint Ownership. One way to make sure property passes to an unmarried partner is to own the property jointly, with right of survivorship. If one joint tenant dies, his or her interest immediately ceases to exist and the remaining joint tenants own the entire property. This is also a good way to avoid probate.
  • Beneficiary Designations. Make sure to review the beneficiary designations on bank accounts, retirement funds, and life insurance to make sure your partner is named as the beneficiary (if that is what you want). Your partner will not have access to any of those accounts without a specific beneficiary designation.
  • Durable Power of Attorney. This appoints one or more people to act for you on financial and legal matters in the event of your incapacity. Without it, if you become disabled or even unable to manage your affairs for a period of time, your finances could become disordered and your bills not paid, and this would place a greater burden on your partner. Your partner might have to go to court to seek the appointment of a conservator, which takes time and money, all of which can be avoided through a simple document.
  • Health Care Proxy. Similar to a durable power of attorney, a health care proxy appoints an agent to make health care decisions for you when you can’t do so for yourself, whether permanently or temporarily. Again, without this document in place, your partner might be shut out by other family members or forced to go to court to be appointed guardian. If it is important for all of your family members to be able to communicate with health care providers, a broad HIPAA release — named for the Health Insurance Portability and Accountability Act (HIPAA) of 1996 — will permit medical personnel to share information with anyone and everyone you name, not limiting this function to your health care agent.
  • Will. Your will says who will get your property after your death. However, it’s increasingly irrelevant for this purpose as most property passes outside of probate through joint ownership, beneficiary designations, and trusts. Yet your will is still important for two other reasons. First, if you have minor children, it permits you to name their guardians in the event you are not there to continue your parental role. Second, it allows you to pick your personal representative (also called an executor or executrix) to take care of everything having to do with your estate, including distributing your possessions, paying your final bills, filing your final tax return, and closing out your accounts. It’s best that you choose who serves in this role.
  • Revocable Trust. A revocable trust can be especially important for unmarried couples. It permits the person or people you name to manage your financial affairs for you as well as to avoid probate. You can name one or more people to serve as co-trustee with you so that you can work together on your finances. This allows them to seamlessly take over in the event of your incapacity.

Your attorney can help you determine the estate plan that is right for you and your partner.

Resolving Conflicts Between Co-Agents on a Power of Attorney

Having power of attorney over a family member is a big responsibility and sometimes it makes sense to share that responsibility with someone else. But when two people are named co-agents under a power of attorney, conflicts can arise. Unfortunately, if the conflict can’t be resolved, it may be necessary to get a court involved.

A power of attorney allows a person to appoint someone called an “agent” or “attorney-in-fact” to act in his or her place for financial purposes when and if the person ever becomes incapacitated. A power of attorney can name one agent or it can require two or more agents to act together.

If you are acting as a co-agent under a power of attorney, but you and your fellow agent disagree on a course of action or one party has stopped participating in decision making, what can you do? The first thing is to check the wording of the power of attorney document to see if it sets up a procedure for resolving disputes. If the power of attorney itself doesn’t help, you should contact an attorney. The attorney can tell you if your state’s power of attorney laws offer any guidance. There may be a state statute that deals with disputes.

If the dispute still cannot be resolved, the final step may be to file a petition in probate court to let the court decide it. Or if the court finds that one of the agents is not acting according to the incapacitated person’s best interests, it can revoke the agent’s authority. Unfortunately, taking the matter to court takes time and money.

If you are creating a power of attorney and want more than one agent to share responsibility, but want to minimize conflict, you can name two agents and let the agents act separately. Naming more than two agents can get cumbersome and make communication difficult. An alternative to naming co-agents is for the power of attorney document to name agents in sequence. The first-named agent acts alone, but if he or she cannot serve for some reason, the next person on the list will serve.

Bank Pays Price for Refusing to Honor Request Made Under a Power of Attorney

A durable power of attorney (POA) allows the person creating the POA, called the “principal,” to name a trusted agent who can act on his behalf in almost any situation. But because of the risk of abuse, many banks will scrutinize a POA carefully before allowing the agent to act on the principal’s behalf, and often a bank will refuse to honor a POA. Bank of America rebuffed a Florida agent’s request that funds be withdrawn from the principal’s account. The agent fought back in court and won a $64,000 judgment against the bank.

Clarence Smith, Sr., named his son, Clarence Smith, Jr., as his agent under a POA. When his father no longer wanted to manage his own finances, he asked Clarence Jr. to step in as his agent. Clarence Jr. reviewed his father’s account activity and became suspicious about some withdrawals from a bank account that Clarence Sr. owned jointly with a friend from his retirement community.

Acting as his father’s agent under the POA, Clarence Jr., asked Bank of America to transfer $65,000 from the account into a new account that listed only his father as the owner. Before doing so, Bank of America contacted the other person named on the account. When she told the bank that she did not want the funds withdrawn and also accused Clarence Jr. of stealing his father’s money, Bank of America refused to honor Clarence Jr.’s request. The other account owner then withdrew all of the funds from the account and placed them into her own account, effectively preventing Clarence Sr. from accessing his own money. Clarence Sr. died several weeks later.

Clarence Jr. sued Bank of America under a Florida law that imposes penalties on financial institutions that refuse to honor reasonable requests from agents named in properly executed POAs. A jury returned a verdict against the bank and awarded $64,142 to Clarence Sr.’s estate. The jury found that Bank of America had not acted reasonably when it rejected Clarence Jr.’s request, even though the joint owner of the bank account had not agreed to the release of the funds.

While this case clearly illustrates the conflicts that can arise through the use of a POA, it also raises the issue of the proper use of joint bank accounts in estate planning. Under most state laws, when two or more people own “joint” bank accounts, each of them has the right to the entire account, no matter whose money is actually in the account. While joint accounts can often be useful, sometimes, as in this case, joint owners or their agents can disagree about the use of funds in the accounts. When that happens, the party who makes it to the bank first often wins. Your attorney can explain the pros and cons of joint ownership, draft an effective POA, and assist family members when disputes arise.

Revoking a Power of Attorney

If for any reason, you become unhappy with the person you have appointed to make decisions for you under a durable power of attorney, you may revoke the power of attorney at any time. There are a few steps you should take to ensure the document is properly revoked.

While any new power of attorney should state that old powers of attorney are revoked, you should also put the revocation in writing. The revocation should include your name, a statement that you are of sound mind, and your wish to revoke the power of attorney. You should also specify the date the original power of attorney was executed and the person selected as your agent. Sign the document and send it to your old agent as well as any institutions or agencies that have a copy of the power of attorney. Attach your new power of attorney if you have one.

You will also need to get the old power of attorney back from your agent. If you can’t get it back, send the agent a certified letter, stating that the power of attorney has been revoked.

Because a durable power of attorney is the most important estate planning instrument available, if you revoke a power of attorney, it is important to have a new one in place. Your attorney can assist you in revoking an old power of attorney or drafting a new one.

Why Not Just Use an Off-the-Shelf Power of Attorney Form?

A durable power of attorney is one of the most important estate planning documents you can have. It allows you to appoint someone to act for you (your “agent” or “attorney-in-fact”) if you become incapacitated. Without a power of attorney, your loved ones would not be able to make decisions for you or manage your finances without asking the court to appoint a guardian or conservator, which is an expensive and time-consuming process.

There are many do-it-yourself power of attorney forms available; however, it is a good idea to have an attorney draft the form for you. There are many issues to consider and one size does not fit all.

The agent’s powers

The power of attorney document sets out the agent’s powers. Powers given to an agent typically include buying or selling property, managing a business, paying debts, investing money, engaging in legal proceedings, borrowing money, cashing checks, and collecting debts. They may also include the power to consent to medical treatment. Some powers will not be included unless they are specifically mentioned. This includes the power to make gifts and the power to designate beneficiaries of your insurance policies.

The power to make gifts of your money and property is a particularly important power. If you want to ensure your agent has the authority to do Medicaid planning on your behalf in the event you need to enter a nursing home, then the power of attorney must give the agent the power to modify trusts and make gifts. The wording in a power of attorney can be significant, so it is necessary to consult an attorney.

Springing or immediate

The power of attorney can take effect immediately or it can become effective only once you are disabled, called a “springing” power of attorney. While a springing power seems like a good idea, it can cause delays and extra expense because incapacity will need to be determined. If the power of attorney is springing, it is very important that the method for determining incapacity is clearly spelled out in the document.

Joint agents

While it is possible to name more than one person as your agent, this can lead to confusion. If you do have more than one person named, you need to be clear whether both parties need to act together or whether they can each act independently. It might make more sense and be less confusing to name an alternative agent to act in case the first agent is unable to.

Appointing a guardian

Another use of a power of attorney can be to nominate a guardian in case guardianship proceedings become necessary. Including your preference for a guardian can allow you to have some say over who will be managing your affairs. Usually, the court decides who will be chosen as a guardian, but in most circumstances, the court will abide by your nomination in the durable power of attorney.

Executing the power of attorney

To be valid a power of attorney must be executed properly. Some states may require a signature, others may require the power of attorney to be notarized, and still others may require witnesses. It is important to consult with an estate planning attorney in your state to ensure your power of attorney is executed properly.

Accepting a power of attorney

Even if you do everything exactly right, some banks and other institutions are reluctant to accept a power of attorney. These institutions are afraid of a lawsuit if the power of attorney is no longer valid. Many banks or other financial institutions have their own standard power of attorney forms. To avoid problems, you may want to execute the forms offered by the institutions with which you have accounts. But be careful that you don’t sign a bank’s document that inadvertently restricts a power of attorney’s ability to deal with other assets, and you should check that any documents you sign with a bank match the original power of attorney.

8 Questions and Answers About Being an Agent Under a Power of Attorney

You have just been appointed as an agent, or “attorney-in-fact,” under a durable power of attorney, a document that, for most people, is even more useful than a will. Your appointment allows you to act in place of the “principal” – the person executing the power of attorney — for financial purposes when and if that person ever becomes incapacitated. Here are answers to eight frequently asked questions about the agent’s duties, responsibilities and powers under the document.

1. What are my duties as agent?

You have been appointed to represent the principal with respect to his or her financial affairs. In effect, you can step into his or her shoes and take whatever investment and spending measures the principal would take himself or herself. Unless limitations have been placed in the power of attorney itself, you can open bank accounts, withdraw funds from bank accounts, trade stock, pay bills, cash checks. All steps you take must be consistent with your role as a “fiduciary.”

2. What does it mean to be a “fiduciary”?

This means that you will be held to the highest standards of good faith, fair dealing and undivided loyalty with respect to the principal. You must always act in his or her best interest and keep his or her goals and wishes in mind in making any discretionary decision. However, you do not have the same responsibility as a trustee or executor, who has total control over the estate or trust assets, since you share control with the principal himself or herself. Your duty only covers the level of care you take in your own actions as agent.

3. Can I be held liable for my actions as agent?

Yes, but only if you act with willful misconduct or gross negligence. If you do your best and keep the principal’s interests in mind as the basis of your actions, you will not incur any liability.

4. When does the power of attorney take effect?

Unless the power of attorney is “springing,” it takes effect as soon as it is signed by the principal. A “springing” power of attorney takes effect only when the event described in the instrument itself takes place. Typically, this is the incapacity of the principal as certified by one or more physicians. In most cases, even when the power of attorney is immediately effective, the principal does not intend for it to be used until he or she becomes incapacitated. You should discuss this with the principal so that you know and can carry out his or her wishes.

5. What if there is more than one agent?

Depending on the wording of the power of attorney, you may or may not have to act together on all transactions. In most cases, when there are multiple agents they are appointed “severally,” meaning that they can each act independently of one another. Nevertheless, it is important for them to communicate with one another to make certain that their actions are consistent.

6. Can I be fired?

Certainly. The principal may revoke the power of attorney at any time. All he or she needs to do is send you a letter to this effect. The appointment of a conservator or guardian does not immediately revoke the power of attorney. But the conservator or guardian, like the principal, has the power to revoke the power of attorney.

7. What kind of records should I keep?

It is very important that you keep good records of your actions under the power of attorney. That is the best way to be able to answer any questions anyone may raise. The most important rule to keep in mind is not to commingle the funds you are managing with your own money. Keep the accounts separate. The easiest way to keep records is to run all funds through a checking account. The checks will act as receipts and the checkbook register as a running account.

8. Can I be compensated for my work as agent?

Yes, if the principal has agreed to pay you. In general, the agent is entitled to “reasonable” compensation for his or her services. However, in most cases, the agent is a family member and does not expect to be paid. If you would like to be paid, it is best that you discuss this with the principal, agree on a reasonable rate of payment, and put that agreement in writing. That is the only way to avoid misunderstandings in the future.

How to Handle Sibling Disputes Over a Power of Attorney

A power of attorney is one of the most important estate planning documents, but when one sibling is named in a power of attorney, there is the potential for disputes with other siblings. No matter which side you are on, it is important to know your rights and limitations.

A power of attorney allows someone to appoint another person — an “attorney-in-fact” or “agent” — to act in place of him or her — the “principal” — if the principal ever becomes incapacitated. There are two types of powers of attorney: financial and medical. Financial powers of attorney usually include the right to open bank accounts, withdraw funds from bank accounts, trade stock, pay bills, and cash checks. They could also include the right to give gifts. Medical powers of attorney allow the agent to make health care decisions. In all of these tasks, the agent is required to act in the best interests of the principal. The power of attorney document explains the specific duties of the agent.

When a parent names only one child to be the agent under a power of attorney, it can cause bad feelings and distrust. If you are dealing with a sibling who has been named agent under a power of attorney or if you have been named agent under a power of attorney over your siblings, the following are some things to keep in mind:

Right to information. Your parent doesn’t have to tell you whom he or she chose as the agent. In addition, the agent under the power of attorney isn’t required to provide information about the parent to other family members.

Access to the parent. An agent under a financial power of attorney should not have the right to bar a sibling from seeing their parent. A medical power of attorney may give the agent the right to prevent access to a parent if the agent believes the visit would be detrimental to the parent’s health.

Revoking a power of attorney. As long as the parent is competent, he or she can revoke a power of attorney at any time for any reason. The parent should put the revocation in writing and inform the old agent.

Removing an agent under power of attorney. Once a parent is no longer competent, he or she cannot revoke the power of attorney. If the agent is acting improperly, family members can file a petition in court challenging the agent. If the court finds the agent is not acting in the principal’s best interest, the court can revoke the power of attorney and appoint a guardian.

The power of attorney ends at death. If the principal under the power of attorney dies, the agent no longer has any power over the principal’s estate. The court will need to appoint an executor or personal representative to manage the decedent’s property.

If you are drafting a power of attorney document and want to avoid the potential for conflicts, there are some options. You can name co-agents in the document. You need to be careful how this is worded or it could cause more problems. The best way to name two co-agents is to let the agents act separately. Another option is to steer clear of family members and name a professional fiduciary.

Sibling disputes over how to provide care or where a parent will live can escalate into a guardianship battle that can cost the family thousands of dollars. Drafting a formal sibling agreement (also called a family care agreement) is a way to give guidance to the agent under the power of attorney and provide for consequences if the agreement isn’t followed. Even if you don’t draft a formal agreement, openly talking about the areas of potential disagreement can help. If necessary, a mediator can help families come to an agreement on care.

To determine the best way for your family to provide care, consult with your attorney.