Planning for the future is not always easy, but it is one of the most helpful things you can do for yourself and your family. An important part of that planning may be creating a power of attorney.
A power of attorney allows someone you trust to help manage your affairs. It may be useful if you are traveling, dealing with an illness, or unable to handle financial matters on your own due to incapacity. In Texas, one common option is a statutory durable power of attorney.
Although that name may sound complicated, the basic idea is simple: you choose someone to act for you in certain property or financial matters. This guide explains what that means, what authority you may grant, and what you should consider before signing the document.
What Is a Power of Attorney?
A power of attorney is a legal document in which one person gives another person authority to act on their behalf.
The person creating the power of attorney is called the principal. The person receiving authority is called the agent or attorney-in-fact.
The agent does not have to be a lawyer. An agent may be a spouse, adult child, relative, close friend, or professional adviser – so long as the agent is a person trusted by the principal.
Depending on the document, an agent may be able to:
- Pay the principal’s bills.
- Manage bank and investment accounts.
- Buy, sell, or manage property.
- Operate a business.
- Handle insurance and retirement benefits.
- Communicate with government agencies.
- Address tax matters.
- Sign certain documents for the principal.
A power of attorney does not give an agent unlimited authority. The agent may exercise only the powers granted by the document and applicable law. Even so, deciding who will serve as your agent is a serious determination that deserves careful thought.
What Does a Texas Statutory Durable Power of Attorney Do?
A Texas statutory durable power of attorney generally covers property and financial matters. The Texas statutory form lists several categories of authority that a principal may choose to give an agent.
The form warns that these powers can be broad. A principal should therefore select an agent carefully and understand the authority being granted.
It Does Not Cover Health-Care Decisions
A Texas statutory durable power of attorney does not authorize an agent to make medical or other health-care decisions for the principal.
A person who wants someone to make health-care decisions may need a separate medical power of attorney or another advance health-care directive. The financial and medical documents serve different purposes, even when the same person is named in both. We will cover medical powers of attorney in a future post-[join our mailing list here] to be notified when it is published.
What Does “Durable” Mean?
In this context, durable means that the power of attorney may continue to operate even if the principal later becomes disabled or incapacitated.
A person may be incapacitated when that person is unable to understand or manage important financial matters. For example, a serious injury, illness, or cognitive condition might prevent someone from paying bills or handling property.
Under the Texas statutory form, a principal generally has two choices on when the power of attorney becomes effective.
Immediate Power of Attorney
The first choice allows the document to become effective when it is signed. The agent may begin acting immediately, even while the principal is still able to manage their own affairs.
This option may be convenient when the principal already wants help. However, it also means the agent may have access to important financial powers right away.
Power of Attorney Effective Upon Incapacity
The second choice allows the document to become effective only if the principal becomes disabled or incapacitated. This is sometimes called a springing power of attorney because the agent’s authority “springs” into effect after a specified event.
If this choice is used and the power of attorney does not provide another definition, the Texas statutory form generally relies on a physician’s written certification following an examination to determine whether the principal is mentally incapable of managing financial affairs. The principal may establish which standard governs the incapacity determination.
Waiting until incapacity may provide the principal with greater control while healthy. However, it may also cause delays if the agent must obtain proof of incapacity before acting.
What Powers May Be Granted?
The Texas statutory form allows the principal to grant individual categories of authority. The principal may also grant all listed categories by selecting the form’s “all powers” option.
The following are some (but not all) important categories:
Real Property
Real property generally means land and buildings, including a house, rental property, farm, ranch, or commercial building.
Real property authority may allow an agent to:
- Buy or sell real estate.
- Lease or manage property.
- Make repairs or improvements.
- Pay or challenge property taxes.
- Obtain insurance.
- Mortgage or otherwise place a lien on property.
- Handle mineral interests.
- Sign deeds, leases, and other real estate documents.
Because a home and other real estate may be among the principal’s most valuable assets, this is a significant power.
Texas law may impose additional signing or location requirements for certain transactions. For example, the statutory form contains a special warning about signing a power of attorney intended to authorize an agent to sign home equity loan documents.
Business Operations
If the principal owns a business, business-operating authority may allow the agent to keep it running.
The agent may be able to manage contracts, employees, expenses, inventory, business property, and other operational matters. Depending on the authority granted, the agent might also continue, reorganize, sell, or close a business interest.
A business owner should consider whether the proposed agent has enough knowledge to handle the company’s financial and practical needs. Business owners should further ensure that their governing documents are consistent with the authority conferred under their power of attorney.
Personal and Family Maintenance
This authority generally allows the agent to use the principal’s money for reasonable personal and household needs.
It may include paying for:
- Housing and utilities.
- Food and clothing.
- Transportation.
- Medical or personal care expenses.
- Education.
- Support for dependents.
- Other ordinary family expenses.
This power can help ensure that the principal and people the principal normally supports continue to have their basic needs met.
Tangible Personal Property
Tangible personal property means physical items that can be touched, such as:
- Cars and trucks.
- Furniture.
- Jewelry.
- Equipment and tools.
- Artwork and collectibles.
- Household goods.
An agent with this authority may be able to buy, sell, store, insure, repair, transport, or otherwise manage these items.
Banking and Financial Accounts
Banking authority may permit an agent to work with banks and other financial institutions.
Depending on the document and the institution’s requirements, the agent may be able to:
- Deposit and withdraw money.
- Write or endorse checks.
- Pay bills.
- Open or close accounts.
- Obtain account statements.
- Access a safe-deposit box.
- Borrow money for the principal.
- Manage certificates of deposit or similar accounts.
This is often one of the most useful powers. It is also one of the powers most open to misuse.
Stocks, Bonds, Commodities, and Options
The statutory form includes separate categories for stock and bond transactions and for commodity and option transactions.
These powers may allow an agent to manage investments, communicate with brokers, buy or sell covered assets, and sign related documents. Because investment decisions may involve substantial risk, the principal should consider the agent’s knowledge and judgment before granting this authority.
Claims and Litigation
Claims and litigation authority may allow an agent to manage legal claims involving the principal.
The agent may be able to:
- Bring or defend a claim.
- Hire and communicate with an attorney.
- Gather records.
- Participate in arbitration.
- Negotiate or accept a settlement.
- Sign documents related to the claim.
The agent does not become the principal’s lawyer merely by receiving this authority. Instead, the agent may hire legal counsel and make authorized decisions for the principal.
Tax Matters
Tax authority may allow an agent to:
- Prepare and file returns.
- Pay taxes.
- Request refunds.
- Communicate with the Internal Revenue Service or another taxing authority.
- Respond to notices.
- Make elections allowed by tax law.
- Hire accountants or other tax professionals.
A separate agency form may sometimes be required before a tax authority will communicate with the agent.
Digital Assets
The Texas statutory form includes authority over digital assets and the content of electronic communications.
Digital assets may include online accounts, electronic files, photographs, cryptocurrency, websites, domain names, or other electronically stored property.
This authority is increasingly important because much of a person’s financial and personal information may exist only online. Access may still depend on applicable law, privacy rules, account agreements, and the language used in the power of attorney.
Special Powers Require Extra Caution
Some actions can significantly reduce the principal’s property or change who receives it after death. The Texas statutory form may be modified to grant these powers specifically.
These powers may affect the principal’s estate plan. For example, an agent who changes a beneficiary designation may change who receives a retirement account or insurance benefit. An agent who makes gifts may reduce the property available for the principal’s future care.
The principal should not grant these powers casually. Each power should be discussed with an estate-planning attorney and coordinated with the principal’s will, trusts, beneficiary designations, and long-term goals.
What Duties Does the Agent Have?
An agent under a power of attorney has a fiduciary relationship with the principal. A fiduciary relationship is a special legal relationship. In plain English, the agent must use the authority for the principal’s benefit, and not as an opportunity to benefit the agent.
An agent’s duties generally include the following:
Act in Good Faith
The agent must act honestly and with a proper purpose. The agent should make thoughtful decisions based on the principal’s needs and instructions.
Stay Within the Granted Authority
The agent may not take actions that the document does not authorize. Being named as an agent does not give the agent ownership of the principal’s property.
Act Loyally for the Principal
The agent must put the principal’s interests first. The agent should avoid using the position for improper personal benefit.
Avoid Harmful Conflicts of Interest
A conflict of interest may arise when the agent’s personal interests compete with the principal’s interests. The agent must avoid conflicts that interfere with the ability to act in the principal’s best interest.
Clearly Identify the Agent’s Role
When signing for the principal, the agent should clearly show that the signature is being made in a representative role. The agent should not sign in a way that suggests the principal personally signed the document.
Keep Detailed Records
An agent should maintain records of every important action and decision, including:
- Bank statements.
- Receipts.
- Bills and invoices.
- Contracts.
- Property records.
- Records of deposits and withdrawals.
- Tax documents.
- Communications with financial institutions.
- Notes explaining major decisions.
If the principal requests an accounting, the agent may have to provide a detailed report covering property received, actions taken, money spent, assets controlled, liabilities, cash balances, and supporting documents.
When Does a Power of Attorney End?
A durable power of attorney does not continue forever. Depending on the circumstances, the document or the agent’s authority may terminate when:
- The principal dies.
- The principal revokes the power of attorney.
- A termination date or event stated in the document occurs.
- The document’s purpose is completed.
- The agent dies, resigns, becomes incapacitated, or is removed.
- A court appoints and qualifies a permanent guardian for the principal, unless a court order provides otherwise.
- The principal and an agent-spouse divorce or have their marriage annulled or declared void, unless the document states otherwise.
- Another event under Texas law ends the document or the agent’s authority.
The agent must stop acting after learning that the power of attorney or the agent’s authority has ended or been suspended.
A temporary guardianship may suspend the power of attorney or the agent’s authority unless a court orders otherwise.
Capacity to Sign or Revoke the Document
The principal must have the required legal capacity when signing a power of attorney. In general terms, the principal must be able to understand the nature and effect of the document and the authority being granted.
A principal also generally must have sufficient capacity to revoke the document. If capacity is uncertain, questions about execution or revocation may require legal advice or court involvement.
Revoking a power of attorney involves more than destroying a copy. Banks, financial institutions, the agent, and other people who might rely on the document should receive clear notice. A later power of attorney does not necessarily revoke an earlier one unless the new document expressly says that the earlier document, or all earlier durable powers of attorney, is revoked.
Practical Tips for Texas Families
Choose Someone You Trust
Your agent may receive broad control over your money and property. Choose someone who is honest, reliable, available, and able to keep good records.
Consider Naming a Successor Agent
A successor can act if the first agent dies, resigns, becomes incapacitated, refuses to serve, or is removed. Naming a successor may help avoid the need to create a new document later.
Do Not Grant More Authority Than Necessary
Granting all listed powers may be convenient, but it may not be appropriate for everyone. Consider whether the agent actually needs each category of authority.
Think Carefully About Co-Agents
The Texas form permits co-agents. Unless the principal provides otherwise, co-agents may generally act independently.
Independent authority may make transactions easier, but it also means one co-agent may act without the other. Requiring joint action may provide oversight but can cause delays or disagreements.
Review the Document With an Attorney
An attorney can help you determine:
- Which powers are appropriate.
- Whether authority should begin immediately or upon incapacity.
- Whether special gifting or trust powers are necessary.
- How the document fits with the principal’s estate plan.
- Whether special signing or recording rules apply.
- How to revoke an older power of attorney properly.
Review the Document Regularly
Relationships, health, finances, and laws change. Review the document after major life events, including:
- Marriage or divorce.
- Death or incapacity of an agent.
- Moving to another state.
- A major change in health.
- Buying or selling a business.
- A significant change in assets.
- Changes to an estate plan.
Final Thoughts
A Texas statutory durable power of attorney can be a valuable planning tool. It can help ensure that a trusted person is available to manage financial and property matters when assistance is needed. However, it is also a powerful legal document. The wrong agent, unclear instructions, or overly broad authority can create serious financial and family problems.
The best approach is to understand the available choices, select the agent carefully, coordinate the document with the rest of the estate plan, and obtain legal advice before signing.
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This blog post is for general informational purposes only and does not constitute legal advice. Reading this article, or contacting our firm through this website, does not create an attorney-client relationship. Laws change frequently and every situation is different, so you should consult a licensed Texas attorney about your specific circumstances before acting on anything discussed here.
