When does a Power of Attorney become Effective?

When an agent’s power to act is contingent upon a certain event occurring, the power of attorney is considered a “springing” power of attorney. Once the triggering event occurs, the power of attorney “springs to life” and gives the agent power to act on behalf of the principal. In most cases, the triggering event in a springing power of attorney is the principal’s incapacity, as declared in writing before a notary public by two licensed physicians. A second type of power of attorney is one that gives the agent power to act on behalf of the principal immediately after the principal executes the power of attorney. This automatic power allows the agent to act in the principal’s best interest without having to wait for some triggering event or without having to formally prove that some triggering event actually occurred.

Until recently, most financial or non-medial powers of attorney were springing powers of attorney. This type of power of attorney allowed the agent to manage the financial and business affairs of the principal only when the principal could no longer manage his or her affairs. The person granting the power of attorney generally found comfort in the fact that their agent could not act on their behalf until any perceived incapacity was confirmed by at least two licensed physicians. The agents, who are typically spouses, parents, and adult children, found the requirement of formally proving the principal’s incapacitation to be overly burdensome. Chasing down two doctors and finding notaries became problematic and often delayed the agent’s ability to act.

The modern trend in estate planning is to utilize automatic powers of attorney, at least when it comes to non-medical powers of attorney, such as a financial power of attorney. The rationale underlying this philosophical shift is two-fold. First, it saves an agent a lot of hurdle-jumping when he or she needs to act in a quick and decisive manner. Ideally, a family member could be by their loved one’s side in the hours and days after a tragic accident instead of running around trying to formally prove that the triggering event had actually occurred. Second, it is assumed that the principal trusts the person he or she names as his or her agent in a valid power of attorney. It is logical to infer that if the principal trusts his or her agent enough to give them control while he or she is incapacitated, then the principal likely trusts that agent now… so they prefer to let the agent act without unnecessary delay.

An agent acting under a power of attorney has a continuing fiduciary duty to act in the best interest of the principal. Even if an agent has automatic power to act, it does not mean that the agent can pay their own expenses with the principal’s money or sail away to the Cayman Islands with the principal’s money. An agent is required by law to use his or her power to do what is in the best interest of the principal. An agent, who fails to act in accordance with their fiduciary duty may be subject to both civil and criminal liability.

When it comes to deciding whether to use a springing or automatic power of attorney in an estate plan, it is best to consult with an attorney to best assess the benefits, risks, and possible consequences of each type of power of attorney.

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