Often the Durable Power of Attorney will state that the Agent may only act if the Principal is disabled or incapacitated. It is important to read the Durable Power of Attorney and determine what documentation is necessary to activate it. Sometimes it is sufficient to obtain a statement from one doctor, attesting to the Principal's incapacity; sometimes two doctor statements are needed. If the Principal denies he or she is incapacitated (despite overwhelming evidence to the contrary), a court order declaring the Principal to be incapacitated may be needed.
Asserting control over the Principal's assets
Once the Durable Power of Attorney is activated, an Agent with the authority to manage the Principal's finances needs to establish control over the Principal's assets. With regard to third parties holding assets, such as banks & investment firms, this can be accomplished by presenting an affidavit, signed by the Agent, stating certain facts (including the fact that all acts necessary to make the Power of Attorney effective have occurred, & the Power of Attorney has not been revoked). This procedure absolves the third party of any liability for relying on the Power of Attorney, unless the third party knew or should have known that one or more material statements in the affidavit are untrue. This affidavit procedure was adopted in 2001, & is intended to ease concerns by third parties about giving access to the Principal's funds. If a third party does not honor the affidavit, the Agent may file a court petition.
Accounting by Agent
Anyone with a legitimate interest in the welfare of the Principal generally has the right to request an explanation of all property of the Principal that has come into the possession of the Agent, and all expenditures made on the Principal's behalf. Under the court procedure explained below, a court has the authority to compel an accounting. Depending on the situation, it may be prudent to hire an attorney to assist with the preparation of an accounting, to ensure it complies with the standards applicable to fiduciary accounting, particularly if the Agent anticipates any dispute to arise over the information contained in the accounting.
Revocation or Termination of a Durable Power of Attorney
The Principal retains the right to revoke a Power of Attorney at any time, so long as he or she is mentally competent to do so. A court also has the authority to revoke a Power of Attorney, which is important if an Agent coerced the Principal into signing a Power of Attorney through fraud or undue influence. If a Principal attempts to revoke a Durable Power of Attorney after he or she becomes incapacitated, the Agent may be forced to file a court petition declaring that the Durable Power of Attorney remains in effect, and that the Principal has lost the right to revoke it due to an ongoing incapacity. The Agent's authority under the Power of Attorney generally ceases at the Principal's death; however, any action taken by the Agent before he or she has actual knowledge of the Principal's death is binding on the Principal's estate, unless the action taken is otherwise invalid or unenforceable.
Court Proceedings over Powers of Attorney
Execution of a valid Power of Attorney often keeps the Principal's affairs out of the court system. However, there are situations where a court petition may be brought to resolve a dispute regarding a Power of Attorney. For example, there may be a dispute regarding the validity of a Power of Attorney; whether any disability of the Principal necessary to activate the Power of Attorney exists; and whether the Agent should be removed for misusing his or her authority. In such situations, the Agent, the Principal, and the Principal's spouse, registered domestic partner, or legal guardian may file a petition seeking a court order resolving the dispute. A petition may also be filed by any interested person, so long as that person demonstrates to the court's satisfaction that he or she is interested in the welfare of the Principal, has a good faith belief that the court's intervention is necessary, and that the Principal is incapacitated or otherwise unable to protect his or her own interests
What a Court Petition may ask the Court to Do
Any petition filed may ask the court to: (1) Determine whether the Power of Attorney is in effect or has been terminated. (2) Compel the Agent to produce an accounting, if the Agent failed to produce an accounting within 60 days of a written request. (3) Ratify past acts or approve proposed acts of the Agent. (4) Order the Agent to exercise or refrain from exercising his or her authority for a particular purpose. (5) Modify the authority of the Agent under the Power of Attorney. (6) Remove the Agent, upon a determination by the court that the Agent has violated or is unfit to perform his or her duties, & that the Agent's removal is in the Principal's best interest. (7) Approve an Agent's Resignation & approve any accounting submitted by Agent. (8) Confirm the authority of a successor Agent upon removal or resignation of a prior Agent. (9) Compel a third party to honor the authority of the Agent. (10) Order the Agent to furnish bond in an amount the court deems appropriate.
The Rights of the Principal in Court Proceedings
The Principal is automatically considered a party to any court proceeding, and therefore entitled to a copy of the petition and notice of any court hearings. However, if the Principal is incapacitated, the court should appoint a Guardian ad Litem, or GAL, to represent the interests of the incapacitated Principal. The appointment of a GAL is not automatic, as it is in guardianship proceedings; in this type of proceeding, a party must petition the court to appoint a GAL for the Principal, and an evidentiary hearing will be held to determine whether a GAL is necessary. The Principal has the right to attend any such hearing and object to the appointment of a GAL.
The Court's Ruling at the Hearing
At the hearing, the court must order relief that is the least restrictive to the exercise of the Power of Attorney while still adequate in the court's view to serve the Principal's best interests. Upon entry of an order resolving these issues, the court's oversight of the Agent's actions and the operation of the Power of Attorney ends, unless the court finds that further court involvement is necessary or another petition is subsequently filed. In ruling on a petition, the court may award costs, including reasonable attorneys' fees, to any person participating in the proceedings from any other person participating in the proceedings, or from the assets of the Principal, as the court determines to be equitable. In a proceeding to compel a third party to accept a Power of Attorney, the court may order costs, including attorneys' fees, to be paid by the third party if the court determines that the third party did not act in good faith.
Resolving issues without resorting to a Court Hearing
If all parties agree to a resolution of the issues raised in the petition, then a contested hearing may be avoided by execution of a binding settlement agreement; filing the agreement with the court is deemed to be equivalent to a final court order binding on all parties.