English common law understood that agents were sometimes needed in business and commerce. The president of Ford Motor Company obviously can’t be everywhere. He needs agents to do business. Also, someone who is on vacation out of the country and unable to sign a contract could help an agent sign that all-important document.

But under common law, an agent no longer had the ability to act when the important was incapacitated (with “principal” being the person conferring power). If the principal had dementia and couldn’t sign an agreement, his agent couldn’t sign either. His agent couldn’t have more power than the principal.

Now, if you haven’t fully figured this out, we’re all going to feel the effects of aging, if we’re lucky. The symptoms are well known and require no explanation. One of those particularly difficult symptoms to cope with is memory loss; the ability to think as clearly as when we were younger. While this is not always disabling, it is during this natural aging process that people often need help. But English common law was of little help if someone was in a coma or had insanity.

Here comes the durable power of attorney.

But because defenseless people obviously need the help of an agent more, most jurisdictions now recognize a “durable” power of attorney (abbreviated “DPOA”). A DPOA is “durable” because it is in effect even when the “principal” is mentally incompetent.

Whereas a non-durable power of attorney simply authorizes the agent to act as long as there is no incapacity, a DPOA solves this problem by allowing a trusted, or nominee, agent to act. even if the principal lacks legal capacity, that is, when that person cannot legally make decisions on his or her own behalf due to mental disability.

In California, a DPOA must have specific words to be “sustainable.” It must state, as required by California Probate Code §4124, that: “This power of attorney shall be effective upon principal’s incapacity,” or words to that effect.

Some benefits of a DPOA

A DPOA has specific benefits; In fact, I would go so far as to say that almost everyone with a formal estate plan should consider having one. Here are some of the benefits:

• Often one can avoid an adult guardianship. A primary benefit of having a DPOA is that it can often take the place of a formal guardianship, which is often an expensive court proceeding that requires ongoing court supervision. So, if a person has a disability and has a properly drafted DPOA, their agent can write checks, manage finances, or take action regarding that person’s estate plan (such as funding a trust) without specific court oversight. .
• It can be quickly effective. A DPOA can take effect immediately, or virtually, without going through lengthy proceedings in Probate Court.
• It should be accepted in other states. A valid DPOA must be accepted in other states. California has a specific statute, Probate Code §4053, that specifically recognizes valid DPOAs executed in other states. However, with some states this may not be the case if the document gives power of attorney not authorized in that state. Nevertheless (And this “however” is a big one!): The IRS doesn’t make it easy to recognize a power of attorney prepared by an attorney. There are obstacles established in specific Treasury Regulations [See, for instance, Treas. Reg. §601.503] and IRS practice makes it difficult for an agent to sign tax forms. [IRS Deskguide (Publication 1514)]. However, a California taxpayer with a valid and properly executed power of attorney should have no problem having the California Franchise Tax Board sign a state tax form.
• DPOAs are flexible. Specific authorizations, or “powers,” may be added or restricted in the governing agreement. Specific provisions are left to the discretion of the principal.

Of course, not everything is perfect…

While very useful, DPOA is by no means perfect. A major problem is the possibility of abuse.

While guardianships are voluminous legal proceedings, at least there is court oversight. The DPOA lacks oversight and abuses have occurred all too often. While conservators must jump through many legal hoops, there is no active court oversight or “rings” for an agent under a DPOA. For example, California requires conservators to provide a court-approved report of their financial activities. It also requires conservators to be bound. But without a specific court order, there are no such requirements for a parent agent.

Court proceedings can be filed, but that is often not practical. While the short procedures they can be instituted to force (for example) the agent to submit an account or to revoke the authority of the agent, this is done very rarely. There is a big difference between a court-supervised guardianship and filing a petition in court.

In any case, who is going to file the petition in court? Remember: The director is mentally incapacitated! People in a coma generally cannot file probate petitions to hold their agents accountable!

Sure, there are risks, and they can be addressed in part (but not completely) through a well-written document and some common-sense precautions. A DPOA may not be for everyone. However, everyone should at least consider a DPOA as an element of their estate plan. An effectively drafted DPOA can “fill in” a comprehensive plan and fill in the blanks not covered in trusts and wills.

Disclaimer: The information in this article is not legal advice and its use does not create an attorney-client relationship. Any liability that may arise from your use of or reliance on this article or any link in this article is expressly disclaimed. This article should not be relied upon as legal advice, and is subject to change without notice, or may contain outdated or dated information, or information that is not relevant to your jurisdiction. If you need legal services, you should consult an attorney.