The Case for Signing a Power of Attorney

The best reason to set up a power of attorney for yourself or an elderly family member is to avoid a far more contentious and expensive alternative later: guardianship.

A power of attorney becomes urgent if an elderly family member is showing early signs of dementia. “You want to run, not walk, to get that done because capacity tends not to get better,” said Jonathan Williams, an attorney with the Clarity Legal Group in the Raleigh-Durham, N.C., area.

“Having good legal documents in place, if the person has the ability to execute them, can be helpful later on,” he said.

In a power of attorney, the person signing the document agrees to name an agent, usually a trusted family member or caregiver, who can take care of legal and financial matters in the event she can no longer do so herself. A power of attorney does not put any constraints on what the signer is currently able to do. She can continue to write checks, enter into real estate transactions, and make investment decisions.

During a recent webinar sponsored by the Duke Dementia Family Support Program, Williams explained some of the legal “gray areas” that can crop up around powers of attorney.

Even if someone is showing cognitive decline, a power of attorney may still be possible if an attorney “can be convinced in a conversation that the person we’re working with has an adequate understanding of the consequences of their signing it, even if that understanding is later lost or forgotten,” he said.

“Just because someone has been diagnosed with a cognitive impairment doesn’t mean they lack the legal capacity to act for themselves.” In this case, the attorney might have to consult with the person’s medical provider or review medical records before deciding what to do about a power of attorney.

But convincing an attorney in these situations isn’t a sure bet, and time is of the essence. Once someone becomes fully incapacitated, the only option may be guardianship, which Williams called a “blunt force tool with a lot of collateral effects.”

Guardianship, a legal process that effectively strips a person of her right to act on her own behalf, must be approved by a court. In cases of dementia, a guardianship may be required when the loved one in your care is unable to act, is acting recklessly, is undermining your ability to act in their best interest under the power of attorney or has appointed “a bad actor” to represent them, possibly under duress, he said.

And guardianship is filled with legal landmines. A sibling might object in court, perhaps for the wrong reasons, to your application to be your parent’s guardian. The legal process can become contentious if the family members involved have a toxic relationship.

It’s also up to the court to select the guardian, which means risking uncertainty about who that person will be, Williams said. And hiring an attorney to establish guardianship is much more expensive than having someone willingly sign a power of attorney, a relatively straightforward legal document.

Williams raised an important issue for people who decide to relocate an aging parent, who has signed a power of attorney, to another state. The issue is more practical than legal. While states ultimately will honor a power of attorney signed in a different state, he said, it might take time and effort to persuade a financial institution such as a bank or brokerage firm to honor a document they are unfamiliar with because it’s drafted under a different state’s laws.

To take another example, a problem could arise for a parent who signed a Health Care Power of Attorney for medical decisions if the parent goes into the hospital, and the doctor isn’t familiar with the other state’s document.

“The doctor’s going to look at it and they’ll say, ‘I don’t know what this is,’ ” Williams said. “They’ll have to send it to the legal department. But if you have a locally drafted health care power of attorney that looks like all the other ones that the doctor has seen that week, he’ll say, ‘let’s go.’ ”

Squared Away writer Kim Blanton invites you to follow us on Twitter @SquaredAwayBC. To stay current on our blog, please join our free email list. You’ll receive just one email each week – with links to the two new posts for that week – when you sign up here.  This blog is supported by the Center for Retirement Research at Boston College.