A power of
attorney is a grant by a principal to an agent of powers to
control assets belonging to the principal. A power executed
by a principal lacking capacity is void. The power can refer
to specific assets, such as a bank account (most banks have
their own forms for this purpose), in which case it is a
special power of attorney, or can be granted for all of
the principal’s assets (a general power of attorney).
The powers granted to the agent can be very broad (“to act in
my name, place and stead in any way which I could do, if I
were personally present, to the extent that I am permitted by
law to act through an agent”) or very narrow (“to manage my
real property located at 2828 North Central Avenue and for no
other purpose”). Powers of attorney are automatically
canceled in the event the principal becomes incapacitated
after executing the power unless the document specifically
provides that it will survive the incapacity of the principal
(this is called a durable power). A durable power of
attorney can take effect immediately, or it can be written now
to take effect only in the event the principal later becomes
incapacitated (a springing power). The power can
appoint a single agent, two or more acting jointly, or two or
more acting sequentially, with the second agent granted power
only if the first agent is unable to act. All powers of
attorney cease to have any effect upon the death of the
principal.
Requirements for an effective power of attorney.
A.R.S. §
14-5501 sets forth the general requirements for a valid
power. The instrument creating the power must be in writing,
contain language clearly indicating the intent of the
principal to grant powers to the agent, be signed by the
principal, witnessed (by someone other than the agent, the
agent’s spouse or the agent’s children) and acknowledged by
affidavit of the witness before a notary public. In order to
constitute a durable power of attorney, the instrument must
use either of the following provisions (A.R.S. §14-5501(B)):
1. "This power of attorney
is not affected by subsequent disability or incapacity of
the principal or lapse of time."
2. "This power of attorney
is effective on the disability or incapacity of the
principal."
Powers of
attorney may be granted by entities, such as corporations or
LLCs, as well as natural persons. A.R.S. § 14-5501(D)
provides a form for the acknowledgment and affidavit.
Revocation.
A power of
attorney may be revoked at any time during the principal’s
capacity by an instrument of revocation, by orally informing
the agent of its termination, or by executing a new power.
Because it is easily revoked, A.R.S. § 14-5505 provides that a
third party will be held harmless and may rely on an affidavit
provided by the agent to the effect that, to the best of the
agent’s knowledge, the power has not been revoked and is
currently in effect.
Prohibition
on Improper Agent Actions.
Arizona
has strict and detailed requirements that agents acting under
a power of attorney do so only in the “best interest” of the
principal. “Best interest” is defined as solely for
the principal’s benefit. A.R.S. § 14-5506(F) imposes a duty
on the agent to use a power only in the best interest of the
principal and not for the agent’s benefit. A violation of
this duty can subject the agent to severe penalties, including
criminal prosecution for theft, a civil action in which treble
damages are recoverable, and forfeiture of any inheritance the
agent might otherwise receive from the principal (A.R.S. §
46-456). Any authority of the agent to act in the agent’s
benefit or not in the best interest of the principal must be
specifically set forth in the instrument and separately
initialed by the principal and the witness. For example, an
Arizona resident wishes to grant a durable power of attorney
to his son, who lives in Oregon. It might be desirable to
allow the son to stay in the principal’s home if he is in
Arizona exercising the power. Such a provision should be
specifically set forth in the instrument and initialed because
it grants a power which is not solely in the principal’s
interest.
Capacity of the Principal.
A power of
attorney can be granted only by a principal who has legal
capacity to act in his own behalf. Generally, this means that
the principal must be of legal age (or be acting through a
legal guardian); have the mental capacity to understand what
he is doing and appreciate the consequences of it; and not be
a vulnerable adult subject to the undue influence of the
agent. In the event the grant of a power is challenged for
lack of capacity, the burden of proof is on the agent in a
criminal proceeding to prove the principal had capacity by
“clear and convincing evidence.” In a civil action, if a
party is able to show that the principal was, at the time of
granting the power, a “vulnerable adult”, the agent must show
capacity of the principal under the clear and convincing
standard. Otherwise, the agent has the burden of showing
capacity by a preponderance of the evidence.
Bob
Ciancola is an attorney in Scottsdale practicing in business
transactions, tax law and estate planning. He may be reached
at 480 346-1080 or on his website at
www.ciancolaw.com.
