What would you do if you were suddenly unable to make decisions regarding your real estate or finances? Who would step in to help manage your affairs if you needed help to do so? A power of attorney can help you navigate these challenges.
What is a Power of Attorney?
A power of attorney (POA) is a legal document that authorizes one person to act on behalf of another. An agent may have special or limited authority under the POA for a specific transaction, or broad authority to make decisions on multiple topics.
POAs are useful in the event of an illness or disability. An agent can pay bills, manage finances, and handle other specific business for the principal if the principal can no longer handle his or her financial affairs. However, this does not just apply to incapacity: You can also use a POA for temporary assistance if the principal will be out of the country or otherwise unavailable to make legal decisions for an extended period.
Specifically, a “durable” POA is a document that survives once the principal becomes incompetent or incapacitated. This is an important feature that may eliminate the need for lengthy delays and costly litigation later. If a POA is not durable, either by explicit language or other circumstances, the document terminates when the principal becomes incapacitated or mentally incompetent.
What Are the North Carolina Laws Governing the Durable Power of Attorney?
The North Carolina Uniform Power of Attorney Act is the governing law on POAs and includes definitions, agent duties, and information about when a POA is valid and effective. The law was updated in 2018.
The Old Law
The pre-2018 law did not define “incapacity” and failed to provide a clear set of criteria for how – and when – a principal would be deemed incompetent under the law. As such, a principal’s capacity (or lack thereof) was often left up to an affidavit that frequently ended in litigation.
Also, under the old law, a POA was presumed not durable, unless the document specifically stated otherwise through language like, “this POA shall not be affected by my subsequent incompetence or incapacity.” Further, the old law stated that a durable POA was only valid if it was registered in the relevant county’s register of deeds office before the principal’s incapacity set in.
The New Law
The new law, effective as of January 1, 2018, streamlined the POA requirements and defined incapacity as:
“The inability of an individual to manage property or business affairs because the individual has any of the following statuses:
- An impairment in the ability to receive and evaluate information or make or communicate decisions even with the use of technological assistance.
- Is missing, detained, including incarcerated in a penal system, or outside the United States and unable to return.”
Also, a POA is now automatically considered durable. As such, a principal who wants his or her agent’s authority to terminate upon the onset of incapacity must explicitly write this into the document. So, in other words, your POA is now durable, in essence, by default. Unless the POA specifically states incapacity as the trigger for termination, the POA does not automatically terminate upon the principal’s incapacity.
The new law also identifies the appropriate process for determining capacity. If the principal conditions the effective date of the POA on incapacity and does not authorize a person to make the status determination, two individuals from the medical field or one appropriate government official will make the call.
How Does the Change in the North Carolina POA Law Affect My POA?
Although the new law jettisoned the recording requirement for POAs and now durable POAs need not be recorded with the register of deeds, the recording requirement nonetheless still applies to POAs executed before January 1, 2018. If your pre-January 1, 2018, POA is not recorded and the principal has since been deemed incompetent, your POA is likely invalid.
As such, make sure you check your document to see what law applies – the old or the new. A seemingly insignificant detail can determine whether an agent had the authority to act on the principal’s behalf – an issue that can give rise to contentious litigation.
How Do I Know When My Loved Ones Needs a POA?
A POA gives an individual the ability to make legal decisions on your behalf. If you foresee any situation where you may be unable to make a legal decision, proactively executing a POA giving someone you trust the authority to make these decisions for you can save your family from the stress of figuring it out later.
You should have a POA when you anticipate an inability to make decisions on your own. It is common to execute a POA in retirement or when a person is facing a long-term medical crisis that will impact one’s decision-making ability. However, POAs are also useful for individuals who travel abroad or may otherwise be unavailable for an extended time.
An agent can help make decisions that are in your best interest. So, even if you just need some help managing your obligations, a POA may be a good option since an agent can assist you in making decisions that are in your best interest.
Remember that a POA is only valid if the principal is competent when the document is executed, so be proactive. If you wait to prepare a POA until something happens where you need one, it could be too late.
Contact Our Experienced Estate Planning Attorneys
At Wilson Ratledge, we assist our clients in preparing and executing documents that help them remain financially secure and sound. We understand that helping a family member through the onset of incapacity is trying and emotional and are here to help you navigate the challenges that arise. For assistance, contact one of our experienced North Carolina estate planning attorneys today at 919-787-7711 or via our contact form below. We look forward to serving you.