When does a Springing Power of Attorney Spring?
“My Agent can Act When I’m Incapcitated”
In this post I’m going to describe the many ways a springing power of attorney can spring into effect.
What Does Springing Mean?”
First, let’s discuss what a springing power of attorney is. A power of attorney, from an estate planning perspective, is its own stand-alone legal document that gives someone else, often referred to as an Agent, or Attorney-in-Fact, (we’ll use Agent for this video) the power, during your lifetime, to transact on your behalf. It’s commonly used if you are incapacitated and unable to transact matters for yourself, such as a property sale or purchase, vehicle sale, or a financial transaction. Powers of attorney are typically either effective immediately (when signed), or some POAs are effective when you become incapacitated. These POAs that have no effect until you become incapacitated are often referred to as a springing power of attorney because they spring into effect when you become incapacitated and you can’t transact for yourself.
Pete Names Ariel as Agent and Abby as Alternative Agent
Let me give you an example. Let’s say Pete creates a POA. Pete knows it's good practice to set up a POA as part of an overall estate plan. Because Pete is the one establishing the POA, Pete is referred to as the Principal. On Pete’s POA, Pete designates his wife, Ariel as his Agent - the person who has POA for Pete. Pete also does the wise thing and designates an alternate agent - his adult daughter, Abby. So Pete wants Ariel to be his agent and Abby to be the alternate agent.
Principle Has Mild Stroke
Initially, Pete is not really comfortable making his POA effective immediately. He is concerned that Ariel or Abby one day might get a hold of the POA document, run to Pete’s bank, and wipe Pete clean. By the way, if Pete is concerned about that, then maybe Pete shouldn’t be naming Ariel or Abby as an agent on the POA. But nonetheless, Pete thinks to himself, “I’m going to make my POA a springing POA because I don’t want Ariel or Abby to be able to touch my stuff unless I’m incapacitated.”
So Pete signs his POA and it sits there for a few years until one day Pete has a mild stroke. He loses some of his function. He can’t drive. He’s off. Pete and his wife, Ariel, need to sell their home and buy another home. But getting Pete out of the house is difficult, and really, it’s questionable whether Pete can sign a bunch of house sale and purchase documents. At that point, Ariel says, “I have POA for Pete. I’ll sign everything for him.” So the title company inspects Pete’s POA and they realize it is a springing POA that says Ariel can only sign for Pete if Pete is incapacitated.
Definition of Incapacity
So, how do you determine whether Pete is “incapacitated” for purposes of the POA. Well, the first thing you do is you look to the POA instrument Pete signed to see if it describes a definition for incapacity. Maybe it does and maybe it doesn’t. If you make a springing POA, how will your incapacity be defined? It could be defined in a number of different ways. (1) Incapacity could be defined as when a doctor provides in writing that you can’t effectively manage your property or financial affairs. (2) Or it could be defined as when two doctors provide in writing that you can’t effectively manage your property or financial affairs. (3) Or incapacity could be defined in a POA as when a court determines you are disabled, incompetent, or legally incapacitated.(4) Or should your POA spring into effect if you’ve disappeared for 30 or 60 days, or should it spring into effect if you’ve been detained or kidnapped?
So the problem with a springing POA is that instead of immediately being able to use the POA when the need arises, the agent must get this determination of incapacity before using the POA, and getting doctors to sign statements or affidavits that you are incapacitated can be a real hassle for your agent, particularly if it is at a time when your agent is under the gun to get things done on your behalf.
What if Agent Becomes Incapacitated?
But let’s say Ariel went through the hassle of getting Pete’s doctors to examine Pete and the doctors sign the appropriate written documents that declare Pete unable to act for himself. Now, finally, Ariel can act for Pete. But what if Ariel then gets sick, or in an accident, or gets demented, and Ariel is now unable to act for Pete. What does their daughter Abby have to do to now act for Pete because remember Pete named Ariel his first agent and Abby his alternate agent. What’s the standard for an alternate agent to jump into that agent role because the agent is incapacitated? Does the alternate agent, to use Pete’s POA, have to get doctor’s statements from both Pete’s doctors and Ariel’s doctors to use Pete’s POA? Sounds like a real hassle.
Consider an Immediate Power of Attorney
That’s why when many people make a power of attorney, they make it effective immediately. If Pete’s POA was effective immediately when signed, then Ariel could have transacted for Pete the moment it was necessary, without having to run around to hospitals and doctors offices to have Pete examined by physicians and hope that the physician will put his or her neck on the line by signing statements acknowledging that Pete is incapacitated.
So, when you make a POA, especially if you have the total and implicit trust in the agent you intend to appoint, you should consider making that POA effective immediately (meaning, when signed) versus making it a springing POA. Even if your POA is immediate, you can still transact for yourself while you are alive and well. But your immediate POA will make it easier for your agent to act for you when you become incapable - which is when most POAs get used.