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The license-to-steal document that everyone needs

Power of attorney gives permission to another person to manage your financial affairs — a person who must have your complete trust

Joseph F. Cook, Esq., is a partner in the Brattleboro firm of Corum Mabie Cook Prodan Angell & Secrest, PLC. The firm’s colleagues periodically offer material in these pages to introduce readers to issues at the nexus of finance and law.

BRATTLEBORO—Although not everyone needs a trust agreement, everyone should have a power of attorney, since we do not know what the future holds.

A power of attorney is a written document whereby you appoint some other person, known as your agent, to make decisions and act on your behalf.

Most of our clients have appointed agents to make a broad range of financial decisions for them if they become unable to make those decisions themselves. In light of the broad authority and discretion that a power of attorney typically confers, and the lack of judicial oversight, it is important to designate someone in whom you have complete confidence to serve in this role.

Hopefully, your agent will never need to use your power of attorney.

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If you do not have a power of attorney and become unable to care for yourself, to write checks, to sign deeds and tax returns, and to otherwise manage your finances, your family or friends might need to initiate protracted and expensive involuntary guardianship proceedings.

In Vermont, courts will appoint guardians in involuntary proceedings only if the person in need of a guardianship has been evaluated by a qualified mental-health professional.

Persons in need of a guardian must be represented by an attorney, as well as a guardian ad litem.

Once a guardian has been appointed, he or she must file detailed annual accountings with the probate court which detail the income, expenses, and assets of the person under guardianship. Those accountings must balance. The preparation of those accountings can be challenging and expensive.

Clients occasionally ask when the authority granted in powers of attorney takes effect. There are documents known as “springing powers of attorney” wherein the authority granted does not take effect until the person who signed the power of attorney, known as the principal, is certified to be unable to make financial decisions by his or her physician.

I will explain why I have never drafted a springing power of attorney.

As noted above, I caution my clients that before they sign their power of attorney, they must be sure that their agents will not take advantage of them through those documents.

Under Vermont law, principals may file petitions in court to require agents to account for their actions. That authority is also granted to the Commissioner of Disabilities, Aging, and Independent Living.

A principal who sustains damages as a result of an agent’s action or inaction may sue the agent for damages. If that principal becomes unable to make their financial decisions, they are unlikely to realize any misappropriation or abuse of the power of attorney authority — much less do anything about it.

The misappropriation of a principal’s funds has torn many families apart. Even if a principal prevails in a suit against his or her agent, the recovery of the funds that have been misappropriated may be difficult at best.

Unlike some states, Vermont does not have a statutory power of attorney. I find those documents only get longer. The most recent addition to the power of attorney that I use with my clients concerns digital assets such as their email account and Facebook page. (Digital assets in estate planning will be the subject of another article that my colleagues or I hope to write.)

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In Vermont, before an agent may exercise the authority granted in a power of attorney, the agent must acknowledge in writing that they have accepted their appointment and that they understand their duties under the law.

In the powers of attorney that I draft, I include the statute that outlines the duties of an agent. They include the following duties:

• to act in good faith in the interest of the principal;

• not to self-deal;

• not to commingle their principal’s funds with their own;

• to keep records of all transactions taken under the power of attorney;

• to provide accountings upon request;

• to follow the directions of the principal.

It is important to understand that the authority granted under a power of attorney ceases when the principal passes away.

Finally, with banks and brokerage firms encouraging their clients to dispense with the need for written statements, it is important to let someone know where to find all the records concerning your finances. Otherwise, some of your assets could wind up with the Office of Unclaimed Property in the state in which you reside.

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Originally published in The Commons issue #377 (Wednesday, October 5, 2016). This story appeared on page D1.

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