A Pennsylvania appeals court has recently upheld a lower court ruling giving the agent the authority to act under a boilerplate power of attorney form even though the terms of the document were not followed. However, the cheap form and the failure of the agent to follow the terms of the power of attorney resulted in years of litigation, thousands of dollars in attorney’s fees and court costs and family discord.

In this case, the mother (“Mercedes”) of six children signed a power of attorney in 2013 that her son Joseph bought over the internet to save money. The power of attorney named Joseph to act as her agent to handle her financial affairs during her lifetime (the ability of an agent under a power of attorney terminates at death). A power of attorney can give the principal (the one who signs a power of attorney – who in this case is Mercedes) the option for the agent to act immediately or to spring upon disability. The power of attorney form that Mercedes signed gave Joseph the authority to act only upon her disability which required a doctor sign a letter that she lacked mental capacity.

Although it would seem to make sense that the agent only act when the principal lacks mental capacity, this is generally not recommended for several reasons including: (1) if you trust your agent, then give authority immediately since you could revoke the power of attorney later for any reason assuming you have mental capacity; (2) the delay in getting a doctor (especially during a pandemic) to sign a letter of incapacity could be detrimental in taking care of a financial matter that needs immediate action; (3) the additional cost of getting the doctor to act; and (4) compliance with requirements of a financial institution to accept the power of attorney – not to mention additional delay.

In this case, the court determined that Joseph had the authority to sell his mother’s home since Joseph had regularly held himself out as the agent for his mother under the power of attorney that his mother had signed, notwithstanding there was no determination of incapacity of Mercedes by a doctor. Joseph desired to sell his mother’s home after she went into a nursing home and signed a contract to sell the home. However, Joseph’s brother, William, who was living in the home at the time and for three years before Mercedes went to a nursing home (although Joseph took care of his mother and she lived at Joseph’s home until he could no longer take care of her). Furthermore, William even had Mercedes deed the homestead to him after she entered in the nursing home – not only because she said that is what she wanted, but also because transfers to a child who lived in a Medicaid applicant’s home and took care of the applicant for two years to prevent institutionalization would avoid a Medicaid estate recovery claim (Mercedes was on Medicaid) against the homestead (this is similar to Texas Medicaid laws which permits this exception to Medicaid’s transfer penalty rules). However, the court ruled that Mercedes lacked mental capacity at the time she signed the deed not to mention that Joseph (not William) took care of his mother. As a result, the deed from Mercedes to William was ruled invalid.

It took years for the appeals court to make its decision in this legal battle among Joseph (acting as an agent and later as executor of Mercedes’ Will since she died during the lawsuit), William and the family that purchased the home from Joseph acting as agent on behalf of Mercedes. The main decision is whether there was authority to act under the cheap internet form purchased by Joseph. He admitted that he had no clue as to when authority became effective. Financial powers of attorney should be tailored to the goals of the individual who is the principal. The agent should understand the powers given.

If interested in learning more about this article or other estate planning, Medicaid and public benefits planning, probate, etc., attend one of our free upcoming virtual Estate Planning Essentials workshops by clicking here or calling 214-720-0102.  We make it simple to attend and it is without obligation.

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