Trust Company of Vermont Christopher Stoneman Article Instructions

In the total scheme of things the power of attorney (POA, for ease of reference) may seem like a trivial component of anyone’s estate plan: short, simple to draft and understand, and a pretty run-of-the-mill accessory, if you will. Hardly worth a separate article, it might be argued.

Not so - at least, not necessarily so. For the POA - like the nail in Ben Franklin’s horse’s shoe - can be the seemingly small and unimportant item for the want of which a far larger thing was made a great deal more tedious, time-consuming, even impossible to achieve.

What then, is this supposedly insignificant instrument, this triangle in the symphony orchestra? What are its features, its primary pluses and, if any, its minuses? In what situations, to mix the metaphor, is it likely to earn its keep?

Let’s begin by dividing POAs into two main categories: the regular ( for want of a better term) POA; and the healthcare POA (also known as an advance directive for healthcare). These have some similar features, to be sure, but there are enough important differences between them to warrant a separate description of each in turn. We will leave the advance directive for healthcare for the next article.

But first, what is a power of attorney - not to be confused as it occasionally is with a power of appointment? In a nutshell, it is a written instrument by which one person, the principal, engages or appoints another person, the agent, to perform certain acts on the principal’s behalf. In some instances, as we shall see, the agent is only empowered to act if and when the principal is unable to do so for herself; in others, the agent’s authority is effectively granted without regard to the principal’s condition or absence. Unlike trust agreements, which may continue long after the grantor has gone to her reward, all POAs, whichever their category (regular or healthcare), terminate at the death of the principal if not before then.

Consider the Vermont * regular POA under the following heads: principal and agent; permissible purposes; effective date and durability; formalities of execution; and duties of agent.
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*The Vermont power of attorney provisions are contained in 14 VSA c.123 whose effective date was June 13, 2002. A POA executed before July 1, 2002 remains valid if it was valid under common law or statute existing at the time of its execution. The Vermont statute dealing with healthcare powers of attorney (“advanced care directives”) is to be found in chapter 231 of Title 18.

Permissible purposes. While generally speaking, the purposes for which a POA may be executed and utilized are as broad as the principal cares to make them and the agent to accept them, there are some important exceptions. It is a given that the POA may not effectively direct the agent to perform acts which are illegal or contrary to public policy. Section 3504 of the statute lists a number of specific duties which may not be delegated to an agent, notably, to make a “healthcare decision,” defined in 18 VSA Section 9701*, to execute, amend or revoke a will or “living will” for the principal, or to exercise the fiduciary responsibility of the principal either as the executor or administrator of an estate or - unless the trust instrument specifically authorizes it - as a trustee. Nor, without specific authorization in the POA, may an agent pay himself compensation or make gifts to himself or to others.

The POA may of course specifically limit the purposes for which it is given - for example, to authorize the agent to consummate a real estate transaction on the principal’s behalf - in which event it is known as a special or limited POA as distinguished from a general power.**

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* “…[C] onsent, refusal to consent or withdrawal of consent to any health care.” The term “health care” is defined at length in section 9701.
** A crucial difference in the estate-area (see later discussion of powers of appointment).

Effective date, durability and presumed validity. Unless the POA provides otherwise, it is effective immediately upon its execution and acceptance by the agent. At common law (i.e., in the absence of a statute), if the principal became incapacitated, a POA ceased to be effective - often at the very time when it was most needed. Now, in every jurisdiction, however, if the principal is so minded, he may insert a clause in his POA which provides that the agent’s authority will persist despite the principal’s disability. Such a power is generally known as a durable POA. Death, however, will always mark the termination of a POA, whether or not “durable,” as of course will the principal’s prior revocation.

It is also possible - and, in many cases deemed desirable - to postpone the effective date of a POA by so providing in the instrument itself. Such a POA is known as a springing POA because it “springs” into effectiveness only if and when the triggering event has occurred. Suppose, for example, that although I insist on remaining in full and sole control of my affairs as long as I am capable of doing so, I am concerned about what may happen if I become incompetent. I may decide to execute a durable springing POA, in which I declare that it is to become effective only if (and after) I should lose my ability to handle my own affairs. Until then, my agent has no authority to act in my behalf. If such an arrangement is to be used, it is essential to specify in the POA exactly who is to determine the question whether I have become incapable of handling my own financial affairs. A typical POA direction might be to have this decided upon the written opinion of two medical doctors, one of whom should be the principal’s own physician, if any and available. The use of a POA may in many instances supplant the need for the appointment of a court-supervised guardian, especially if the POA is used in conjunction with (and drafted to reflect) the principal‘s creation of a revocable trust for his primary benefit.

A POA executed in accordance with chapter 123 is presumed valid; no third party with whom an agent seeks to act shall require an additional or different form of POA. And a photocopy of a duly executed POA may be relied upon to the same extent as the original.

Formalities of execution; termination and revocation. The Vermont statute contains a detailed set of rules which must be followed for the POA to be a valid instrument. The main requirement is that it be signed by the principal in the presence of at least one witness and be acknowledged by the principal before a notary public, who, with two minor exceptions, may not be the same person as the witness. The agent (who must not be the witness or the notary) must also sign the POA (not necessarily in the presence of or at the same time as the principal) and attest, among other things, that he accepts his appointment as agent and understands his duties under the POA and the law.

The rules for termination and revocation of a Vermont POA also warrant an entire section of the statute, 14 VSA 3507. As noted, the principal’s death automatically terminates a POA, as does his living notification “to the agent orally, or in writing, or by any other act evidencing a specific intent to revoke.” Divorce of the principal and the principal’s spouse revokes a POA, if the spouse is the agent, as do the principal’s incompetence (unless, as noted, the POA is a durable POA) and the death or resignation of the agent (unless the POA provides for a back-up or alternate agent). If a court appoints a guardian for the principal, it may also order such revocation.

Duties of an agent. Section 3505 lists the duties of an agent, most of which, as one might expect, reflect the requirement that the agent “act in good faith and in the interest of the principal.” He must also “exercise the degree of care that would be observed by a prudent person dealing with the property and affairs of another person.” With less than complete clarity, a companion section, Section 3506, exonerates the agent from any duty to go beyond the duties imposed by the statute, regardless of whether the principal is disabled or incapacitated or otherwise unable to act.