Choosing the Right Fiduciary: Health Care Powers of Attorney

This is the third installment in our blog series on Choosing the Right Fiduciary, discussing how to select the best agents under a health care power of attorney.

The people you name to act as your agent under a health care power of attorney are responsible for making your medical decisions if you are incapacitated and unable to do so for yourself.  In the absence of a health care power of attorney, Virginia law identifies the people who are authorized to make those choices; however, clients generally prefer to be more specific about who will manage their health care and treatment.

It can be helpful to name a friend or family member with a medical background.  Clients with a nurse or doctor in the family often name that person as their health care agent because he or she will have a better understanding of the client’s condition and the decisions that should be made.  Your health care agent should also be familiar with your personal values – for example, knowing your end of life wishes and whether your religious beliefs would affect your treatment plan. 

Personality can be a major factor as well.  Look for someone who stays calm in emergencies, is able to make quick decisions, and can communicate those decisions clearly to the rest of your loved ones.  Situations where you are abruptly incapacitated because of a medical problem can be very high stress for the people who care about you.  Another factor to consider is that a person’s incapacity may not be temporary, or short-lived.  Health care agents can become overwhelmed when they become responsible for the long-term care of someone who is incapacitated, so it can be a good idea to choose someone who is conveniently located and has a flexible lifestyle.  Complex family dynamics can add to that stress for the person you have entrusted with this responsibility. Naming a strong decision-maker whose choices will be trusted by others can help minimize disagreements surrounding your medical care.

Another way to reduce conflict about your health care is to include an advance directive (sometimes called a “living will”) with your health care power of attorney.  This is your declaration to your doctor that you wish to be removed from artificial life support if your doctor has determined you are terminally ill or in a persistent coma and unlikely to recover.  This can be a powerful tool to effectuate your wishes and to release your loved ones from the burden of making that final decision.

Keep in mind that you can name anyone to act as your health care agent, whether that is a family member, a friend, or a trusted employee or neighbor.  We can help you identify your options, but ultimately you are in the best position to determine who should be named to act in this capacity.

Jennifer Schooley  |  Contact  |  Estate Planning

Choosing the Right Fiduciary: Financial Powers of Attorney

This is the second installment in our blog series on Choosing the Right Fiduciary.  This week, we discuss how to select the best agents under a power of attorney.

An agent under a durable general power of attorney is empowered to carry out almost any action you (called the ‘principal’) could take for yourself with regard to your assets and finances.  Many clients choose to name their spouse as their agent, which can make sense because a spouse is often well-positioned to be familiar with financial affairs and can be one of the most trusted individuals in a person’s life.

Clients who are unmarried or for whom it is not desirable to name a spouse sometimes struggle with this decision, however, and married clients can have similar trouble choosing back-up agents to serve if their spouse is unable to act.  Your choice may be guided by several factors, but the most paramount is trust.  The power granted under these documents makes abuse relatively easy and difficult to detect.  Consider naming family members or close friends who merit a high level of trust and do not have financial, addiction, or other troubles in their past that might render them vulnerable to temptation. 

Another factor to consider when choosing your agent is the relative complexity of your financial situation.  Agents under a power of attorney are typically called upon to pay your obligations and manage your affairs.  If your major assets are cash accounts, retirement assets, and a primary residence, the skills required for your agent to effectively handle your finances are substantially different from someone with interests in small business entities, investment real estate, or securities that are not professionally-managed.

Finally, consider naming someone you believe can be ‘neutral’ in exercising the authority granted under a power of attorney.  Agents have fiduciary duties to avoid conflicts of interest when acting on your behalf, but when family issues between siblings or step-relations arise, it can be difficult for someone who is emotionally invested to remain objective.  One might question how often an agent under a power of attorney could become entangled in such disagreements, but consider a child approaching the agent for an extension of an existing loan, or a second spouse requesting the agent’s cooperation in purchasing a marital residence or funding the spouse's long term care using the principal’s separate assets.  An emotionally-invested agent might even reconfigure beneficiary designations and transfer on death arrangements made by the principal to secure an estate outcome which he or she considers more just.  Another problem might arise if an agent (intentionally or otherwise) sells property that is given by specific bequest to a beneficiary under the principal’s estate planning documents to provide for the principal's support, rather than choosing a different asset to sell.  Naming agents who are suitably loyal to your own interests and values reduces the likelihood of these kinds of conflicts producing undesirable results.

Depending on the level of complexity your agent will be dealing with (whether that means financial or family complexity), it can be worthwhile to name a professional such as an accountant, attorney, or someone else with special skills that will increase the agent’s effectiveness.  Although this option can be more expensive, it might make sense if there is substantial risk in naming a family member or friend who may not be up to the task.  Agents who are already acting under a power of attorney can also benefit from engaging professional services to supplement the agents’ own knowledge and skill.

In case you missed the first part, Choosing the Right Fiduciary. And look for next week’s installment in our blog series on Choosing the Right Fiduciary – Health Care Powers of Attorney.

Jennifer Schooley  |  Contact  |  Estate Planning

Choosing the Right Fiduciary

The importance of choosing the right people to fill fiduciary roles cannot be overstated.  The word “fiduciary” derives from the Latin verb fidere – to trust – and it is true that individuals named to these roles should have the highest level of trustworthiness.  Ideally, however, the people serving as fiduciaries should also possess the necessary skillset to successfully perform the tasks required.  Because the responsibilities in each role are somewhat different from the others, taking the time to think through whether a potential fiduciary’s skillset and personality are compatible with the role is well worth the effort.  Here is an overview of each role, which will be followed in subsequent posts with more detail about each particular one.

• An agent under a power of attorney may manage your finances on your behalf during your lifetime.  Agents are often granted nearly unlimited powers to carry out any action you might undertake for yourself.  Unfortunately, this broad power is sometimes abused, so trustworthiness is the absolute guiding star when choosing an agent.  Another important factor is attention to detail.  Investment, banking, bill payment, and other records of actions should be maintained.  This person may also be tasked with voting on (or otherwise controlling) your business affairs.  Thus, it may be easier for an agent who lives locally and has intimate knowledge of your affairs to act on your behalf.
• By contrast, an agent under a health care power of attorney is empowered to make decisions about your body.   If you are unable to make or communicate a decision about your own medical care, your agent is named to make those decisions.  Thus, this person becomes your advocate.  The person named should be familiar with your values and your wishes, and if necessary, be assertive enough to ask the right questions of medical professionals.  Finally, it is helpful (but not essential) to name someone with medical experience and who is local.  If you are in an assisted living or a nursing care facility, your agent is the facility’s main point of contact.
• An executor is appointed to wrap up your affairs after your death.  This begins by qualifying before the circuit court clerk and may include preparing an inventory of your assets at your death and an accounting showing payment of your debts, receipts by your estate, and distributions to your beneficiaries.  Your executor is also obligated to file your final income tax return.  Strong organizational skills are critical to this position because record-keeping, meeting probate deadlines, and making tax elections and filings are key aspects of the job.  Weeding through and selling, distributing, or donating household contents is also a major function of the job, and it’s no small task.  If the executor is not a resident of the state, this task is more cumbersome.  In addition, the court may require that the executor be bonded. 
• A trustee is put in place to manage money for the long-term benefit of the trust’s beneficiaries.  The person in this position must be prepared for a commitment and possess either a talent for asset management or the ability to assess information provided by a competent professional who is hired.   Consider naming someone who has a sense of your values and the beneficiaries’ needs, so that if the trustee is called upon to make discretionary distributions, he or she has a solid foundation from which to consider the issues.  Often the interests of beneficiaries conflict, so your trustee may be tasked with making difficult choices.

Naming the wrong people to these fiduciary roles can cause even a well-constructed estate plan to fall apart.  Your attorney can help you identify individuals in your life who would be a good fit for each role, but your knowledge of both the character and judgment of the people you choose is paramount.  If you lack confidence that people in your life have the talent or character required of the job, choosing a professional trustee may be the better course.

Jennifer Schooley  |  Contact  |  Estate Planning

Power Of Attorney Pitfalls

In one sense, being named to act as someone’s agent under a power of attorney should be considered an honor – clients are encouraged by their lawyers to choose agents who are highly trustworthy and competent.  Even well-meaning agents, however, can make mistakes, either from simple human error or from a misunderstanding of an agent’s obligations and responsibilities under Virginia law.  Here are just a few of the issues we see giving agents trouble.

Record-Keeping

Agents are obligated by statute to keep records of every transaction they undertake in their principal’s name.  Depending on the individual situation, this could mean keeping many years of records of deposits, withdrawals, expenses paid, reimbursements made to the agent, purchases, and sales.  This can be a lot to undertake while also trying to run your own, busy life, and many agents therefore let their records slip.  The pitfall?  If these records are requested by certain individuals listed in the statute, the agent is obligated to hand them over within thirty days.  Recreating these records (up to five years’ worth) may be impossible at the point the request is received, so it is critically important to maintain the records from the start.

Unauthorized Actions

Although powers of attorney often grant agents broad powers to undertake any action the principal could take with regard to his or her finances, certain powers are considered special and require an express grant of authority to be stated in the document.  If those powers are not specifically listed, the agent is not authorized to exercise them.  These “special powers” include:

• Creating, revoking, or amending the principal’s revocable trust;

• Making gifts of the principal’s property;

• Creating or changing rights of survivorship or beneficiary designations;

• Delegating the agent’s authority to someone else;

• Waiving the principal’s right as a beneficiary of a joint and survivor annuity (including a survivor benefit under a retirement plan); and

• Exercising fiduciary powers that the principal has authority to delegate.

Agents should read the power of attorney granting them authority carefully to determine exactly which powers are granted to them and which are withheld.  In addition, certain powers, even if expressly granted, are further limited by statute depending on the agent’s familial relationship to the principal.

Conflicts of Interest and Good Faith

An agent is obligated to act on the principal’s behalf in accordance with the principal’s best interest, in good faith, and free from conflicts of interest.  Although these may seem like straightforward conditions, in practice they can be more complicated.  An agent can run afoul of these fiduciary responsibilities even when he or she has no intention to act against the principal’s best interest or otherwise cause harm to the principal. 

The bottom line? For violating these duties, agents can be held personally liable for any actual loss to the principal, as well as the attorneys’ fees and costs of a party who raises the issue.  Thus, the best practice is always to get legal advice before taking any action that raises the slightest question mark or causes you to hesitate for any reason.  If you are already acting as agent under a power of attorney and have questions about transactions you have already entered into, it may not be too late to “right the ship” and get back into compliance with your legal responsibilities.

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Estate Law  |  Jennifer Schooley