Considerations When Choosing a Power of Attorney or Guardianship
by Brandy Baxter-Thompson and Nikki Wolff
Chapters 12 and 13 of the Texas Probate Code govern durable powers of attorney (POA) and guardianships of an estate. Under a POA, the agent can be given very broad powers with respect to the management and disposition of the principal’s property. The agent’s powers can become effective either immediately upon execution of the POA or upon a principal’s incapacity (typically determined by a doctor’s letter to that effect). A POA is frequently prepared to try to avoid the need for a guardian of the estate when a person becomes incapacitated and is no longer able to handle his or her property or financial affairs.
Absent a POA, a guardianship of the estate is often necessary when the proposed ward is no longer capable of managing his or her property and financial affairs. Upon a finding by the Court that the proposed ward is incapacitated, a guardian of the estate may be appointed.
There are key distinctions between a POA and a guardianship, including:
• A guardian of the estate must be bonded, while an agent under a POA is not.
• A guardian of the estate must obtain prior Court approval before taking any actions with the ward’s property, whereas an agent under a POA does not require prior approval from the principal or the Court before acting.
• A guardian of the estate has to file an annual accounting with the Court that accounts for all transactions related to the ward’s property. The annual accounting must be audited and approved for the guardian to have authority to act. An agent under a POA must only provide an accounting of transactions upon the principal’s demand.
• A proposed guardian of the estate must hire an attorney to obtain the guardianship and must be continuously represented by an attorney who will prepare and file any documents required by the Texas Probate Code or the Court. The costs of a POA to the principal are likely limited to the preparation, execution and recording of the document, and an agent under a POA does not have to be represented by an attorney.
While a POA may be a less restrictive and less costly alternative to a guardianship of the estate, there are many instances where a POA will not be feasible and a guardianship of the estate may be necessary. For example, if the principal under a POA is incapacitated, he is likely unable to oversee the agent’s actions and incapable of demanding and understanding an accounting of the agent’s actions. Due to lack of oversight by an incapacitated principal, an untrustworthy agent under a POA can more easily misappropriate the principal’s property, and misappropriations may not be discovered until after the death of the principal or the complete exhaustion of the principal’s property.
If any person concerned with the welfare of the proposed ward’s estate has reason to believe an agent is misappropriating the incapacitated principal’s property or otherwise breaching his or her fiduciary duties to a principal, a permanent guardian of the estate can be appointed. Such an appointment will terminate the agent’s authority under the POA: Upon appointment and qualification, the guardian of the estate is the only one with authority to act with regard to the principal’s property.
Another problematic issue arises when a principal has executed more than one POA. With “dueling” POAs, the only way to assure that all POAs are terminated and that any “bad actors” no longer have authority to act as agent under a POA is to obtain a guardianship of the estate of the principal.
In summary, a POA and a guardianship of the estate are mutually exclusive mechanisms to allow another person to manage an incapacitated person’s property and financial affairs. While the POA is a simple and inexpensive document to prepare, it can provide broad powers for the agent with little oversight by an incapacitated principal. A guardianship of the estate is a more expensive alternative, but it provides for court supervision and a bond as safeguard against any mismanagement or wrongdoing by the guardian of the estate. Accordingly, a principal should give great care in deciding who to appoint as his or her agent under a POA given the potential lack of oversight. Under certain circumstances, a guardian of the estate may be necessary and the only option.
Brandy Baxter-Thompson is a non-equity member and Nikki Wolff is an associate at Calloway, Norris, Burdette & Weber, PLLC. They can be reached at firstname.lastname@example.org or email@example.com, respectively.