Bankruptcy and Power of Attorney
ABOUT THE POWER OF ATTORNEY
What is a Power of Attorney?
A Power of Attorney is a legal document delegating authority from one person (the principal) to another (the attorney-in-fact). A principal may make the authority very broad or may limit it to certain specific acts.
What are some uses of a Power of Attorney?
A Power of Attorney may give others the right to do almost any legal act that the principal could do, such as sell a car, home or other property, sign a contract, make health care decisions, handle financial transactions, or sign legal documents.
What is a “Limited Power of Attorney?”
A “Limited Power of Attorney” gives the attorney-in-fact authority to conduct a specific act. For example, a person might use a Limited Power of Attorney to sell a home in another state. Such a Power could be “limited” to selling the home.
What is a “General Power of Attorney?”
A “General” Power of Attorney typically gives the attorney-in- fact very broad powers to perform any legal act on behalf of the principal.
What is a “Durable Power of Attorney?”
Limited and General Powers of Attorney terminate if and when the principal becomes incapacitated. Because many people would like Powers of Attorney that may continue to be used upon their incapacity, Florida law provides for a (special) power known as a “Durable Power of Attorney.” A Durable Power of Attorney remains effective even if a person becomes incapacitated; however, there are certain exceptions specified in Florida law when a Durable Power of Attorney may not be used for an incapacitated principal. A Durable Power of Attorney must contain special wording that provides the power survives the incapacity of the principal. Most Powers of Attorney granted today are durable.
POWERS AND DUTIES OF AN ATTORNEY-IN-FACT
What activities are permitted by an attorney-in-fact?
An attorney-in-fact may perform only those acts specified in the Power of Attorney. If an attorney-in-fact is unsure whether he or she is authorized to do a particular act, the attorney-in-fact should consult the lawyer who prepared the document or other legal counsel.
May an attorney-in-fact sell the principal’s home?
Yes. If the Power of Attorney authorizes the sale of the principal’s homestead, the attorney-in-fact may sell it. If the principal is married, however, the attorney-in-fact must obtain the authorization of the spouse.
What is prohibited?
There are a few actions that an attorney-in-fact is prohibited from doing even if the Power of Attorney states that the action is authorized. An attorney-in-fact, unless also a licensed member of The Florida Bar, may not practice law in Florida. An attorney-in-fact may not sign a document stating that the principal has knowledge of certain facts, saw or heard an event. An attorney-in-fact may not vote in a public election on behalf of the principal. Nor may he/she create or revoke a Will or Codicil for the principal. If the principal was under duty or contract to perform a personal service (i.e., act as attorney-in-fact for someone else or to paint a portrait or provide care services), the attorney-in-fact is not authorized to do these things in the place of the principal.
What are the responsibilities of an attorney-in-fact?
While the Power of Attorney gives the attorney-in-fact authority to act on behalf of the principal, an attorney-in-fact is not obligated to serve. An attorney-in-fact may have a moral or other obligation to take on the responsibilities associated with the Power of Attorney, but the Power of Attorney does not create an obligation to assume the duties. However, once an attorney-in-fact takes on a responsibility, he or she has a duty to act prudently
Is there a certain code of conduct for attorneys-in-fact?
Yes. Attorneys-in-fact must meet a certain standard of care when performing their duties. An attorney-in-fact is looked upon as a “fiduciary” under the law and held to the same standards of conduct as a trustee. A fiduciary relationship is one of trust. If the attorney-in-fact violates this trust, the law may punish the attorney-in-fact both civilly (by ordering the payment of restitution and punishment money) and criminally (probation or jail). See Financial Management and the Liability of an Attorney-in-fact, herein.
USING THE POWER OF ATTORNEY
When is a Durable Power of Attorney effective?
The Durable Power of Attorney is effective as soon as the principal signs it unless the document specifies that it is conditioned on the principal’s lack of capacity to manage property in which case appropriate affidavits are required in accordance with Florida law.
Must the principal deliver the Power of Attorney to the attorney- in-fact right after signing or may the principal wait until such time as the services of the attorney-in-fact are needed?
No. The principal may hold the Power of Attorney document until such time as help is needed and then give it to the attorney-in- fact. Because third parties will not honor the attorney-in-fact’s authority unless the attorney-in-fact provides the Power of Attorney document, the use of the Power of Attorney may effectively be delayed.
Often, the lawyer may fulfill this important role. For example, the principal may leave the Power of Attorney with the lawyer who prepared it, asking the lawyer to deliver it to the attorney-in- fact under certain specific conditions. However, because, the lawyer may not know if and when the principal is incapacitated, the principal should let the attorney-in-fact know that the lawyer has retained the signed document and will deliver it as directed.
How does the attorney-in-fact initiate decision-making authority under the Power of Attorney?
The attorney-in-fact should review the Power of Attorney document carefully to determine what authority the principal granted. After being certain that the Power of Attorney gives the attorney-in-fact the authority to act, the Power of Attorney (or a copy) should be taken to the third party (the bank or other institution, or person with whom you need to deal). Some third parties may ask the attorney-in-fact to sign a document stating that the attorney-in-fact is acting properly. (The attorney-in- fact may wish to consult with a lawyer prior to signing such a document.) An attorney-in-fact should always make it clear that the attorney-in-fact is signing documents on behalf of the principal, and not for him/herself.
How should the attorney-in-fact sign when acting as an attorney-in-fact?
The attorney-in-fact will always want to add after his or her signature that the document is being signed “as attorney-in-fact for” the Principal. If the attorney-in-fact only signs his or her own name, he or she may be held personally accountable for whatever was signed. As long as the signature clearly conveys that the document is being signed in a representative capacity and not personally, the attorney-in-fact is protected. Though lengthy, it is, therefore, best to sign as follows:
Howard Rourk, as attorney-in-fact for Ellsworth Toohey.
In this example, Howard Rourk is the attorney-in-fact, and Ellsworth Toohey is the principal.
What if the third party will not accept the Power of Attorney?
If the Power of Attorney was lawfully executed and it has not been revoked, suspended or terminated, third parties may be forced to honor the document. Due to changes in the law, Durable Powers of Attorney executed on or after October 1, 1995, are provided special enforcement authorizations. An older document may be enforced as well. Under some circumstances, if the third party’s refusal to honor the Durable Power of Attorney causes damage, the third party may be liable for those damages and even attorney’s fees and court costs. Even mere delay may cause damage and this too may be actionable. It is reasonable, however, for the third party to have the time to consult with a lawyer about the Power of Attorney. Banks will often send the Power of Attorney to their legal department for approval. Delay for more than a short period may be unreasonable. Upon refusal or unreasonable delay, consult an attorney.
Why do third parties sometimes refuse Powers of Attorney?
Third parties are often concerned whether the document is valid. They do not know if it was executed properly or forged. They do not know if it has been revoked. They do not know if the principal was competent at the time the Power of Attorney was signed. They do not know whether the principal has died. Third parties do not want liability for the improper use of the document. Some third parties refuse to honor Powers of Attorney because they believe they are protecting the principal from possible unscrupulous conduct.
What if a third party requires the attorney-in-fact to sign an affidavit prior to honoring the Power of Attorney?
A third party is authorized by Florida law to require the attorney-in-fact to sign an affidavit (a sworn or an af firmed written statement), stating that he or she is validly exercising the authority under the Power of Attorney. If the attorney-in-fact wants to use the Durable Power of Attor ney, the attorney-in-fact may need to sign the affidavit if so requested by the third party. The purpose of the affidavit is to relieve the third party of liability for accepting an invalid Durable Power of Attorney. As long as the statements in the affidavit are true at that time, the attorney-in-fact may sign it.
May the attorney-in-fact employ others to assist him or her?
Yes. The attorney-in-fact may hire accountants, lawyers, brokers or other professionals to help with the attorney-in-fact’s duties, but may never delegate his or her responsibility as attorney-in-fact. The Power of Attorney was given by the principal and the attorney-in-fact does not have the right to transfer that power to anyone else.
FINANCIAL MANAGEMENT AND THE LIABILITY OF AN ATTORNEY-IN-FACT
What is “fiduciary responsibility?”
An attorney-in-fact is a fiduciary and as such has a duty to invest and manage the assets of the principal as a prudent investor. This standard requires the attorney-in-fact to exercise reasonable care and caution in managing the assets of the principal. The attorney-in-fact must apply this standard to the overall investments and not to one specific asset. If an attorney-in-fact possesses special financial skills or expertise, he or she has an obligation to use those skills. The attorney-in-fact should keep careful records. Everything the attorney-in- fact does for the principal should be written down, and the attorney-in-fact should keep all receipts and copies of all correspondence, and consider logging phone calls so if the attorney-in-fact is questioned, records are available.
TERMINATION OF THE POWER OF ATTORNEY
When does the attorney-in-fact’s authority under a Durable Power of Attorney terminate?
The authority of the attorney-in-fact of a Durable Power of Attorney automatically ends when one of three things happens: (1) the principal dies; (2) the principal revokes the Power of Attorney, or (3) when a court determines that the principal is totally or partially incapacitated and does not specifically provide that the Power of Attorney is to remain in force. In any of these three instances, the Durable Power of Attorney is terminated. If, after having knowledge of any of these events, a person continues to act as attorney-in-fact, he or she is acting without authority. The power to make health care decisions, however, is not terminated when a court determines that the principal is totally or partially incapacitated unless the court specifically terminates this power.
What is the procedure for a principal to revoke a Power of Attorney?
Written notice must be served on the attorney-in-fact and any other party who might rely on the power. The notice must be served either by any form of mail that requires a signed receipt or by certain approved methods of personal delivery. Special rules exist for serving notice of revocation on banks and other financial institutions. Consult with your lawyer to be sure proper procedures are followed.
When does a non-durable Power of Attorney terminate?
In addition to the three events detailed above, a non-durable Power of Attorney terminates when the principal becomes incapacitated. If the principal of a non-durable power of attorney is believed to be incapacitated, then the attorney-in-fact should consult with his or her lawyer before exercising any further powers on behalf of the principal.
Court proceedings were filed to appoint a guardian for the principal or to determine whether the principal is incapacitated. How does this affect the Power of Attorney?
If a court proceeding to determine the principal’s inca pacity has been filed or if someone is seeking to appoint a guardian for the principal, the Durable Power of Attorney is automatically suspended and an attorney-in-fact must not continue to act. The power to make health care decisions, however, is not suspended unless the court specifically suspends this power.
Authority as attorney-in-fact has been suspended because guardianship proceedings are pending for the principal. Now there is an emergency but there is no guardian and no attorney-in-fact to do something. What now?
The attorney-in-fact may ask the court for special per mission to handle the emergency even though the Power of Attorney remains otherwise suspended. Contact your lawyer.