A little more than a year ago the Texas Legislature made substantial changes to the law establishing a Statutory Durable Power of Attorney (SDPOA). Given those changes, made effective September 1, 2017, persons who created a SDPOA prior to should review those instruments with their attorneys. As important as it is for those with SDPOAs to revisit them, a more fundamental problem exists concerning SDPOAs: many, if not most, people don’t have a good understanding of what a SDPOA is and why they need one.
A Statutory Durable Power of Attorney is a document which gives a designee power to act as an agent for, and to act in place of, the person creating the POA. The document must be signed by the principal – the one granting the power - and it must be notarized. The instrument grants the agent authority to handle whatever items of business the principal has designated to the agent. Under a SDPOA, the principal may grant all or some of a broad list of powers to handle transactions involving real estate, tangible property, stocks and bonds, commodity and options, banking and other financial institutions, business operating, insurance and annuities, estate, trust and beneficiaries, claims and litigation, personal family and maintenance, federal benefits, retirement plans, tax matters and even digital assets.
The SDPOA is a powerfully effective instrument that can often be used to prevent the necessity of an expensive guardianship proceeding and naming of a guardian of the estate of an incapacitated person. For this reason, all persons should execute a SDPOA for themselves.
In general, persons creating a SDPOA intend to handle their own financial affairs until such time as they are incapacitated or incapable of doing so. However, the SDPOA gives the person creating the SDPOA the option to choose one of the following: (1) “This power of attorney is not affected by subsequent disability or incapacity of the principal” or (2) This power of attorney becomes effective on the disability or incapacity of the principal.”
Option No. 1 (in my opinion, inartfully stated) means that the SDPOA goes into effect immediately, without requiring that a physician designate in writing that the person creating it is disabled or incapacitated. The second option means that the SDPOA does not give the agent the power to act until after the principal has been declared disabled or incapacitated in a writing by a physician.
Whether Option 1 with immediate effectiveness or Option 2 with effectiveness delayed until a doctor establishes disability depends upon the particular circumstances of the principal and the agent being named. With either option, it is imperative that the agent named is a person the principal trusts completely to handle his or her affairs in the principal’s best interest.
Given a trustworthy agent, in most instances, Option 1 is often preferable for these practical reasons:
Many, if not most, doctors do not like making the assessment that a person is disabled or incapable of handling his or her affairs; Even when a doctor is willing, the doctor may not be the best person to make that decision, given that often an individual’s decision-making capability can vary from day to day; and Even if the doctor is willing and can make a valid assessment, often action needs to be taken sooner than is possible when the assessment must be secured beforehand. Even when the SDPOA is made effective at once, the principal can still continue to handle their own affairs until they themselves determine they no longer can do so.
The 2017 version of SDPOAs gives the principal the option of designating whether the agent will receive reasonable compensation for performing the duties required under the SDPOA or will merely be entitled to reimbursement for any expenses incurred in performing those duties.
In my experience, most principals name a spouse or another person who will ultimately inherit from them and choose to have that agent perform without compensation.
The SDPOA form enacted in 2017, makes clear that, unless the principal answers “yes” to specific designations, the agent will not have the authority to: (1) create, amend, revoke or terminate a trust the principal has established during life; (2) create or revise rights of survivorship; (3) create a beneficiary designation; or (4) authorize another person to exercise the authority given under this power of attorney.
Sandra W. Reed is an attorney with Katten & Benson, an Elder Law firm in Fort Worth. She lives in beautiful Somervell County, near Chalk Mountain.