By Cowles Liipfert

By Cowles Liipfert

A Power of Attorney is a legal document in which a person (the “Principal”) gives someone else (the “Agent”) the power to act on behalf of the Principal as set forth in the Power of Attorney, perhaps doing things such as writing and signing checks, or even signing deeds or tax returns.  A Power of Attorney may also include the authority to do many other things, and not merely basic functions.

We highly recommend that all adults have properly-executed Durable Powers of Attorney as a precaution, in case the unexpected occurs.   

If the Principal becomes incapacitated, the Agent’s authority under an ordinary agency agreement or an ordinary (non-durable) power of attorney is revoked as a matter of law, but if the Power of Attorney is “Durable,” i.e. if it includes “magic” words indicating the Principal’s intent that it remain in effect if the Principal becomes incapacitated, it will not be automatically revoked.

Until January 1, 2018, North Carolina law required a Durable Power of Attorney to be recorded in the office of the Register of Deeds in the event that the Principal became incapacitated, but that is no longer a legal requirement for documents executed after that date – except for real estate transactions, in which case the power of attorney must still be recorded.

Depending on the language in the instrument, a Durable Power of Attorney may be effective immediately, even if the Principal is capable of acting for himself or herself, or it may be “springing,” i.e. the Power of Attorney becomes active only upon the occurrence of a future event, such as when the Principal becomes legally incompetent.

A statutory Short-Form Power of Attorney form is set out in the North Carolina General Statutes which may be used, instead of a personally-drafted document. 

Short-form powers of attorney have been allowed for many years, but a new statutory Short-Form Power of Attorney was adopted effective January 1, 2008, and it contains new language.

The new short-form document is generally more comprehensive than the old Short-Form Power of Attorney, and it may be further personalized by initialing certain additional powers which are not listed under the main list of powers.  This option was not included under the old statutory form under the North Carolina General Statutes.

If you have an old statutory Short-Form Power of Attorney which was executed before January 1, 2018, it must still be recorded at the Register of Deeds office to be actively used if the Principal becomes incapacitated. 

We recommend that you not use a Durable Power of Attorney with the old statutory short-form language if you can avoid doing so, because the language has been improved. That is, if you insist on having a statutory short-form power of attorney, you should at least use the new form.   

Both the old and the new statutory Short-Form Powers of Attorney are limited in the scope of authority granted to the Agent to act on behalf of the Principal and we recommend that you have a longer, more detailed document which grants specific authority to perform certain types of transactions on your behalf which are not specifically covered in the statutory short-form documents. 

Please note that a document which says something like “I authorize my Agent to do anything which I could do if I were present and acting for myself” does not grant the broad authority for which it seems to be intended, because certain powers must be explicitly specified, in order to be effective.

For example, a Power of Attorney often does not contain the language required by the IRS to authorize the Agent to sign a tax return for the Principal or to deal with the IRS concerning the Principal’s taxes, although it might include some language which on its face might seem sufficient. 

Initialing a specific power titled “Taxes,” in the Power of Attorney, for example, will not be deemed to be sufficient by the IRS, which requires that a power of attorney describe the type of tax and form number to which it is applicable (e.g., “Personal Income Tax, Form 1040”), and also requires that the document specify the years to which it is applicable (e.g., years 2016 through 2022), provided that the applicable period may not extend forward for more than three calendar years after the year in which the power was signed. 

IRS Form 2848, Power of Attorney, is not designed to be durable in the event of incompetency, and the Durable Power of Attorney should be broad enough in scope to permit the Agent to file a Form 2848 on behalf of the Principal. 

The authority of the Agent to act on behalf of the Principal, not only with IRS matters, but in all respects, should be clear and unambiguous in a Durable Power of Attorney.  

Example of a problem: A lady signed a Durable Power of Attorney several years ago.  She now suffers from Alzheimer’s and does not have the legal capacity to sign new documents for herself.  Her family wants to do long-term planning for her, which could include some structured family gifting, which would be permissible under the state Medicaid or Special Assistance laws.  Unfortunately, the old power of attorney does not give her agent the power to make gifts.  

We recommend that you not rely on the statutory Short-Form Power of Attorney, especially the old ones signed before 2018 – but even new documents signed on or after January 1, 2018 – on the mistaken assumption that the document will be comprehensive and will cover all of your needs. 

To the contrary, we recommend that you consult with an attorney and have a power of attorney drafted, designed to meet your personal needs.