Managing Resources of the Elderly

…

Walter sets himself to doing some research. He discovers six legal techniques he can use to get a firm grip on his life and property should he suffer a disability:

power of attorney;
guardianship;
community property administration;
Social Security Representative
Payee;account management; and
a trust.

The Power of Attorney

Subtitle P Durable Powers of Attorney

With a power of attorney, an individual selects a representative to assist him or her with financial and property matters.1 The individual (“the principal”) delegates to the representative (”the agent” or “attorney in fact”) whatever powers the principal feels the agent will need to properly manage the property.

Many powers of attorney are written to grant very broad powers to the agent. However, the principal may, if he or she wishes, grant very narrow powers to the agent, and be very specific in detailing what the agent is to do. Generally, however, for estate planning purposes, the powers granted are extensive, allowing the agent great flexibility.

5-2:1 Types of Powers of Attorney

Financial powers of attorney may be broken down into two types: ”regular” and ”durable.'”

5-2:1.1 Regular Power of Attorney

A regular power of attorney is based on the common law of agency and on statutes about agency. Pursuant to this law, a principal appoints an agent whose authority can be exercised only while the principal has capacity to undertake the same action. Hence, if the principal cannot do something for himself or herself, the agent cannot do it either. Stated another way, if the principal becomes disabled in any way, the agent can no longer act on the principal’s behalf. This is problematic in the estate planning context Mer all, if the principal becomes disabled, he or she truly needs someone to act on his or her behalf. Alas, this is just when the regular power of attorney vanishes!

Dissatisfied, states began devising ways to create a document whereby an agent would be able to act on behalf of a principal who lacked competency. In 1954, Virginia became the first state to authorize a durable power of attorney, which provided that the agent retained the authority to act even if the principal lacked competency.2

5-2:1.2 Durable Power of Attorney

The most significant difference between a regular power of attorney and a durable power of attorney, then, is the fo11owing: A durable power of attorney remains in force even if the principal becomes disabled.3 Moreover, a durable power of attorney does not lapse because of the passage of time unless the instrument creating the power specifically states a tjme limitation.4 Indeed, unless the principal revokes it or a court of competent jurisdiction acts to effectively revoke it, the power of attorney remains in effect and continues to work until the principa1’s death.

However, the common law did not create lhe durable power of attorney; it was cre ated by statute. Hence, to create and use a durable power of attorney, the client-or his or her attorney-must carefully follow the instructions provided by the statute.

5-2:2 Fundamental Requirements of the Durable Power of Attorney

The Texas statute5 requires few formalities to create a durable power of attorney. Essentially, the principal must “write out” his or her instructions, date it, sign it, and have it notarized.GThe statute does not require that the instrument have any witnesses.7

To assist people in creating the durable power of attorney, the legislature created a form called the “Statutory Durable Power of Attorney.”8 A copy of this form is con tained in Appendix 7. However, the form and its wording are not exdusive, and attor neys are free to draw up their own or to use other formats, so long as the wording used complies substantially with the wording prescribed by Texas Estates Code§ 752.051.9

The statute does not require that the durable power of attorney be filed with the County Clerk. However, if the agent uses the power with respect to a real property transaction, he or she will then need to record the power of attorney with the County Clerk’s office in the county where the real property is located.10 The 2015 Texas Leg islature mandated that such a power be filed no later than the 30th day after the filing of the real property instrument.11 The statute is silent regarding the consequences for a failure to file.

A principal can use the durable power of attorney to grant a wide variety of powers to his or her agent. The agent could have the power to, on the principal’s behalf, enter into transactions ranging from personal and real property transactions to foreign interests.¹² However, to grant. these powers to the agent, the principal must specifically mention them in the instrument. When using the statutory durable power of attorney form, the principal must ensure that he or she initializes the line to the left of each power he or she is granting to the agent.13 The principal’s failure to initialize the line tr the left of each enumerated power will be construed as an indication that. the principa did not wish to grant this power to the agent 14

5-2:3 Springing Durable Power of Attorney

Unless the instrument states otherwise, a power of attorney takes effect upon its exe cution.15 The Texas statute changes that; it allows principals to choose whether the power takes immediate effect,iG or whet.her the agent’s authority to act takes effect only if the principal loses the ability to act for himself or herself-that is, if he or she

becomes disabled or incapacitatedY This latter form of durable power of attorney is called a “springing power of attorney.”

TI1e advent of the statutori} , blessed springing power of attorney raises a valid question: If someone executed a durable power of attorney prior to its being autho rized by the Durable Power of Attorney Act in 1993, is that power of attorney valid? If the principal signed a durable power of attorney with a springing power in 1991 and suffers a disability today, is the springing power effective notwithstanding the fact that it was created prior to its being authorized by law?

In Comerica Bank v. Texas Commerce Bank,18 the Court of Appeals in Texarkana held that although no explicit statute authorizing springing powers of attorney existed prior to 1993, such powers were indeed legal. Notwithstanding the court’s authoriza tion of these pre-1993 springing powers of attorney, it is advisable that someone with such a power of attorney execute a current durable power of attorney based on the Texas Durable Power of Attorney Act. This would save the individual from possibly going to court to determine whether his or her particular power is valid.

:4 Revocation of the Power of Attorney

A durable power of attorney does not lapse because of passage of time unless the instrument creating the power specifically states a time limitation.1!1 However, other circumstances can give rise to a termination of the power:

The principal dies.20
Where the principal appointed his or her spouse as agent (or a court appointed the spouse as agent) and the principal and agent divorce or their marriage is annulled, the power of attorney terminates as a matter of law unless the instru ment creating the power of attorney expressly states otherwise.21
A guardian of the principal’s estate is appointed by a court sitting in the princi pal’s domicile.22

Notwithstanding the aforementioned provisions, a revocation of a durable power of attorney is not effectjve as to a third party relying on the power of attorney until the third party receives actual notice of the revocation.23 Also, the filing of a voluntary or involuntary petition in a bankruptcy proceeding on behalf of the principal does not revoke or terminate the power of attorney.21

Comerica Bank-Texas v. Texas Commerce Bank, 2 SW 3d 723 – Tex: Court of Appeals, 6th Dist. 1999 cited in Mayfield v. Worthen, Tex: Court of Appeals, 1st Dist. 2021

5-2:5 The Agent’s Fiduciary Responsibilities

The Durable Power of Attorney Act is clear: The agent is a fiduciary with a duty to account for actions he or she takes under the power of attorney.25 Accordingly, the agent is obligated to perform his or her duties pursuant to the standards of good faith and trustworthiness.²⁶ Should he or she fail to do that, the principal may revoke the power of attorney and/or seek restitution from the agent for misused funds or other proper ty.27

Even in situations where the principal lacks mental capacity, Texas law provides an avenue whereby the agent can be removed. U, after a principal has executed a durable power of attorney, a court sitting in the principal’s domicile is convinced that the agent has been abusing his or her power, the court may appoint a guardian of the principal’s estate–either permanent or temporary-at which time the powers of the agent will terminate and the agent will turn over to the guardian all of the principal’s property in his or her possession.28

5-2:6 Capacity to Execute a Power of Attorney

Texas has no statutory requirement that a principal possess a certain level of capacity in order to execute a power of attorney. However, Texas courts appear to apply the capacity requirements for entering into contracts for determining whether principals had the requisite capacity to execute powers of attorney.29 Under this standard, some one who challenges a principal’s mental capacity when signing a power of attorney has the burden of showing that the principal ”did not understand the nature or conse quences of his act at the moment the power of attorney was executed.”30

26 Vaughn E. James, ‘The Alzheimer’s Advisor:A Caregiver’s Guide to Dealing With the Tough Legal and Practical Issues, 64 (AMACOM Books 2009).

28J See br re Estate of Vackar, 345 S.W.3d 588, 597 (fex. App.-San Antonio 2011, reh’g over ruled).

—noting a person lacks mental capacity to execute a power of attorney if the person does not understand the nature or consequences of executing the instrument

– in Guardianship of AE, 2018

:n re Estate of Vackar, 345 S.W.3cl 588,597 (fex. App.-San Antonio 2011, relz’g ovemlle<f) (citing Tomli11son v.jo11es, 677 S.W.2d 490. 492-93 lTcx. 1984); Mandell & Wright v. Thomas. 441 S.W.2cl 841,845 lTex. 19691).

Mental Capacity A person seeking to set aside a power of attorney based on the executor’s lack of mental capacity must show that the executor did not understand the nature or consequences of his act at the moment the power of attorney was executed. See Tomlinson v. Jones, 677 S.W.2d 490, 492-93 (Tex.1984); Mandell & Wright v. Thomas, 441 S.W.2d 841, 845 (Tex.1969). Mental capacity may be shown by circumstantial evidence of: (1) a person’s outward conduct that manifests an inward condition; (2) pre-existing external circumstances tending to produce a special mental condition; and (3) a prior or subsequent mental condition. Bach v. Hudson, 596 S.W.2d 673, 676 (Tex.Civ.App.-Corpus Christi 1980, no writ). The issue of whether a person has mental capacity is ordinarily a question of fact for the jury to decide. In re Estate of Robinson, 140 S.W.3d 782, 793 (Tex.App.-Corpus Christi 2004, pet. denied).

in pdf