How useful is a power of attorney in real life?

Most people include a power of attorney as part of their estate planning packet. A power of attorney prepares a person for disability by nominating an agent to take care of financial matters if the principal (the person signing the power of attorney) becomes unable to manage his or her own affairs. I have a power of attorney naming my wife as my agent to take care of my finances if I am too ill to take care of them myself. My elderly mother has signed a power of attorney naming me as her agent in case she becomes disabled and can no longer handle her financial affairs. If the power of attorney works as planned, I will step in when my mother can no longer manage her money and I will make the financial decisions she would have made if she had not become disabled. The power of attorney, a relatively inexpensive document, is designed to save a family the stress and cost of going to court to have a formal conservator appointed. But does this work?

I have struggled with explaining how the power of attorney operates in the real world. I used to tell people that it works on a sliding scale. At the low end of the scale, a power of attorney works nearly every time. In the middle it works about half the time, and at the high end it seldom works. Social service agencies are at the low end. If you are the child of a Medicaid applicant with a power of attorney from your parent, the agency will probably give the document only a passing glance before accepting you as the agent. One of the reasons for this liberal attitude is that you are trying to get money for the elder, not from the elder. Society is not going to leave needy elders homeless, because of some defect in the language of a power of attorney.

I tell people that banks are somewhere in the middle of the scale. If I walk into a bank holding a power of attorney signed by my mother and want to take money from her accounts, my chances of being successful are about fifty-fifty. Banks are unpredictable. One day I might get the money with no problem. Another day, even at the same branch of the same bank, the manager might tell me they have to send a power of attorney to the legal department for analysis. Power of attorneys that go to legal departments often disappear there, never to be seen again.

At the high end of the scale sit brokerages. The chances of me getting into my mother's brokerage account with a power of attorney written by a local lawyer (or worse, a form from Office Depot) are between slim and none. If my mother wanted me to have a power of attorney that would work at her brokerage, she should have signed one of their forms, in their office, in front of their notary. I can't say a brokerage will never honor an outside power of attorney. I will promise, however, that the document will spend a fair amount of time being examined by the brokerage's lawyers before it is honored.

I knew this was how power of attorneys worked, but had a hard time explaining why. Then a Corvallis lawyer named Steven Heinrich put it in a way that I think makes it clear. He once pointed out that a power of attorney is an invitation to agencies, banks, and brokerages to accept the agent as authorized to handle the assets of the principal. Some institutions accept the invitation. Others will not. Government agencies are inclined to accept the invitation; banks accept it now and than; and brokerages most often decline. In the case of my mother and me, neither of us can force her bank or anyone else to accept the power of attorney. She agreed that I can act for her when she signed the document, but that is only half the equation. Only when the bank or other third party agrees to honor her wishes does the power of attorney become truly effective.

So what does this mean to someone planning for disability or worried about the impending disability of a parent. The short answer is that one should not put too much reliance on a power of attorney. It is like a seat belt. It may save your life in certain kinds of crashes, but having it on will not protect you from the consequences of your reckless driving. Planning for disability and death requires a plan, not a document. The power of attorney can be part of a plan, but not a substitute for it.