The Importance of Capacity in Powers of Attorney

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Capacity and Powers of Attorney

The Importance of Capacity in Powers of Attorney

As you saw in our blog post last month, there are a lot of important nuances to consider when creating and executing a financial power of attorney.  In February of 2023, Elizabeth A. Anderson, Esq., partner at The Law Network, P.C., presented the importance of powers of attorney and the issue of capacity to a group of nursing home administrators, placement specialists, and geriatric advisors in Colorado. In this article, we will focus on the importance of capacity in powers of attorney and why seeking professional help is essential.

Understanding Capacity

Capacity is the ability of a person to make decisions about their own life, including exercising their civil liberties, such as speaking out for their rights and entering into contracts. Capacity ensures that a person is recognized before the law, and it is incredibly important in the legal field. There are various levels of capacity, but for our topic today, we will focus on the contractual standard.

Legal Standard for Capacity

Executing a power of attorney is similar to executing a contract. As such, the person executing a power of attorney (the “principal”) must meet the legal capacity standard to enter into a contract. The principal must reasonably understand the extent and effect of the particular transaction. Additionally, there must be an absence of any insane delusions which specifically affect the particular transaction. If the principal can meet this low standard of capacity, they have the legal ability to create and execute a power of attorney.

Powers of Attorney and Decision-Making

A power of attorney, however, does not take away the principal’s right to make their own decisions regarding their health care and finances. (Only a court, through a guardianship or conservatorship proceeding, can do that.) The agent only has the power to act, along with the principal, in accordance with the principal’s wishes. This means the principal has the right to make their own decisions as long as they reasonably understand the extent and effect of the particular transaction.

There may be times in which the principal may make decisions the agent does not agree with, but that does not mean the principal necessarily lacks capacity. Everyone has the right to make bad decisions for themselves. Bad decisions do not equate with incapacity.

Determining Incapacity

Determining Capacity

The principal’s right to act for themselves will only terminate upon a finding of incapacity.  Incapacity can be determined by a judge or a physician or licensed psychologists. For a medical professional to determine that the principal lacks capacity, they must evaluate the principal. It is imperative that they assess whether the individual has an impairment in their ability to process information or make or communicate decisions, even with the use of technological assistance. If a medical professional determines that the principal lacks capacity, they must document this in the individual’s medical records.

Until the professional determination has been documented, it must be assumed that the principal has the capacity to continue to act and make their own decisions.  As such, the agent will not be able to go against the principal’s wishes in regard to nursing home placement and financial transactions, such as selling their home. Additionally, unless or until it has been deemed that the principal lacks capacity, the principal will continue to have the power to revoke these documents.

Revoking Powers of Attorney

Signing a new document will automatically revoke any prior power of attorney. However, to make sure everyone is aware of this change, the principal needs to send a letter to the agent notifying them of the revocation. They should also send a copy of the newest power of attorney to anyone who is holding the prior document, such as their bank and other financial institutions.

Seek Professional Help

While powers of attorney may seem like such a simple document, they are very legally important and the legal process to create these documents is very strict. As tempting as the do-it-yourself platforms may be, seeking the help of a professional when creating and executing these documents is essential. Doing it right the first time can save you from running into legal issues down the road.

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