A "power of attorney" is a legal document in which a person (the "principal") appoints another as his or her "attorney-in-fact". The attorney-in-fact has the authority to do those acts that are specified in the power of attorney. The terms of a power of attorney can be drafted to give the attorney-in-fact the authority to act for the principal in a broad range of circumstances. This is called a "general power of attorney". On the other hand, the power of attorney may be narrowly drafted and only apply to a specific set of situations (e.g. executing real estate documents). This is called a "special power of attorney". In Hawaii, Hawaii Revised Statutes Chapter 551D embodies the Uniform Durable Power of Attorney Act, which provides guidance on how a power of attorney should be treated.
While the differences between a "general power of attorney" and "special power of attorney" refer to the scope of authority given to the attorney-in-fact, when a power of attorney becomes effective and when it terminates are also important distinctions to consider.
Regular Power of Attorney: Generally speaking, a power of attorney ceases to become effective when the principal becomes incapacitated. A power of attorney can also be given a termination date (e.g. authority terminates one year after signing). However, a power of attorney can remain effective and survive the principal's incapacity if it contains language that makes it "durable".
Durable Power of Attorney: A durable power of attorney is effective immediately, but the main distinction is that it remains effective even upon the principal's incapacity. A durable power of attorney must contain language that states that it will not terminate upon the principal's incapacity.
Durable Springing Power of Attorney: A "springing" power of attorney only becomes effective upon the occurrence of an event, usually when the principal is deemed incapacitated. Therefore, an attorney-in-fact usually cannot use the power of attorney unless is is accompanied by a physician's letter or court order attesting to the principal's incapacity.
"Limited" or "Special" Power of Attorney: A power of attorney can be modified and tailored to a give a person authority to only act in a particular situation. A limited or special power of attorney can limit the time the authority is effective and restrict the authority bestowed upon the agent. An example would be giving a person a special power of attorney to sign documents for a real estate transaction.
A power of attorney is revoked upon the death of the principal, but it can also be revoked by giving notice to the attorney-in-fact. It is generally sound practice to have a written revocation drafted and given to the attorney-in-fact and any institutions that may have been given a copy of the power of attorney. It is important to note that under Hawaii Revised Statutes Section 551D-4(a), the death of a principal does not revoke or terminate the authority of an attorney-in-fact who does not have actual notice of the principal's death. Therefore, if an attorney-in-fact acts after the principal's death, but he or she does not have actual knowledge of the principal's death, the attorney-in-fact's act will bind the principal's successors-in-interest.
As you have probably surmised, a power of attorney is a powerful document that has the potential to be easily abused. In Hawaii, as elsewhere, there has been an increase of financial abuse involving powers of attorney. Given Hawaii's large and growing elderly population, people must be vigilant about such exploitation and cautious about who they themselves select as their attorney-in-fact.
At the same time, a power of attorney does have its limitations. In Hawaii, there is no statutory requirement that anyone or any institution accept a power of attorney. For example, banks in Hawaii sometimes prefer that their forms be used if the power of attorney presented does not have language that they are comfortable with.
Still, a power of attorney is an essential document in any estate plan because it can be used as a cost-effective alternative to a conservatorship and serves as a useful backup document in the event non-trust assets require management.
Samuel K.L. Suen is an attorney based in Honolulu, Hawaii specializing in estate planning, probate, conservatorship and guardianship matters.
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