What follows is the second in a multi-part series on the Power of Attorney, one of the essential estate planning tools. This series on the Power of Attorney is part of a multi-part series to come on several aspects of essential estate planning tools.
North Carolina General Statute Chapter 32A establishes the durable power of attorney. The idea was to quell fears that a broad general power of attorney might actually be too broad to apply to more specific acts anticipated by the agent and the principal.
Generally, a durable power of attorney is essentially a power of attorney that doesn’t end when the principal becomes incapacitated or mentally incompetent.
The statutory requirements of a durable power of attorney are set out in N.C. Gen. Stat. § 32A-8 which reads, “[a] durable power of attorney is a power of attorney by which a principal designates another his attorney-in-fact in writing and the writing contains a statement that it is executed pursuant to the provisions of this Article or the words ‘This power of attorney shall not be affected by my subsequent incapacity or mental incompetence,’ or ‘This power of attorney shall become effective after I become incapacitated or mentally incompetent,’ or similar words showing the intent of the principal that the authority conferred shall be exercisable notwithstanding the principal’s subsequent incapacity or mental incompetence.
Unless the durable power of attorney provides otherwise, where the grant of power or authority conferred by a durable power of attorney is effective only upon the principal’s subsequent incapacity or mental incompetence, any person to whom such writing is presented, in the absence of actual knowledge to the contrary, shall be entitled to rely on an affidavit, executed by the attorney-in-fact and setting forth that such condition exists, as conclusive proof of such incapacity or mental incompetence, subject to the provisions of G.S. 32A-13. (1983, c. 626, s. 1; 1991, c. 173, s. 1.)” A power of attorney can be written so that it only becomes effective upon the incapacity or mental incompetence of the principal.
The actual incapacity or mental incompetence is called the “springing event.” If the power of attorney is written this way, there is a minor issue with the question of when is a person actually incapacitated or mentally incompetent? The answer has seemingly been to get one or two doctors to attach something to the redecoration of the power of attorney, verifying the incapacitation or mental incompetence. Because of the ambiguity in this area, the legislature in 1991 created a statutorily defined method for establishing when the springing event has occurred.
The language that was added to N.C. Gen. Stat. § 32A-8 reads, “[u]nless the durable power of attorney provides otherwise, where the grant of power or authority conferred by a durable power of attorney is effective only upon the principal’s subsequent incapacity or mental incompetence, any person to whom such writing is presented, in the absence of actual knowledge to the contrary, shall be entitled to rely on affidavit, executed by the attorney-in-fact and setting forth that such condition exists, as conclusive proof of such incapacity or mental incompetence, subject to the provisions of G.S. § 32A-13.” Even with this provision, it’s still probably a good idea to have two doctors verify the incapacity or mental incompetence. In order for the power of attorney to be effective once the principal becomes incompetent, it has to be recorded. Moreover, for any durable power of attorney to be recorded, it has to be acknowledged first.
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Waiving Power of Attorney
Unless expressly waived, the agent has to file accounts and inventories. If the power is waived, the Clerk of Superior Court can conduct audits at its discretion. See Wilson v. Watson, 136 N.C. App. 500, 524 S.E.2d 812 (2000); see In re Edwards, 691 S.E.2d 766, COA09-329, (2010); see N.C. Gen. Stat. § 7A-103(15). The agent is also entitled to compensation. If the amount isn’t stated in the power of attorney, the clerk of Superior Court will set it after considering a number of factors. These include the degree of difficulty and novelty of the tasks required of the trustee, the responsibilities and risks involved, the amount and character of the trust assets, the skill, experience, expertise, and facilities of the trustee, the quality of the trustee’s performance, comparable charges for similar services, time devoted to administering the trust, time constraints imposed upon the trustee in administering the trust, nature and costs of services delegated to others by the trustee, where more than one trustee is serving, the reasonableness of the total fees paid to all trustees, and other factors which the trustee or the clerk of superior court deems to be relevant. N.C. Gen. Stat. § 32-54(b).
A power of attorney may contain any provisions relating to the appointment, resignation, removal and substitution of an attorney-in-fact, and to the rights, powers, duties and responsibilities of the attorney-in-fact. N.C. Gen. Stat. § 32A-12(a). If all attorneys-in-fact named in the instrument or substituted die, or cease to exist, or become incapable of acting, and all methods for substitution provided in the instrument have been exhausted, the power of attorney will no longer be effective. Any substitution by a person authorized to make it has to be in writing signed and acknowledged by that person. Notice of every other substitution also has to be in writing and acknowledged by the person substituted. No substitution or notice subsequent to the principal’s subsequent incapacity or mental incompetence is effective until it has been recorded in the office of the register of deeds of the county in which the power of attorney has been recorded. N.C. Gen. Stat. § 32A-12(b).
Durable Power of Attorney Can Be Revoked
A durable power of attorney that is registered in an office of the register of deeds in North Carolina can be revoked by the death of the principal or “registration in the office of the register of deeds where the power of attorney has been registered of an instrument of revocation executed and acknowledged by the principal while he is not incapacitated or mentally incompetent, or by the registration in such office of an instrument of revocation executed by any person or corporation who is given such power of revocation in the power of attorney, or by this Article, with proof of service thereof in either case on the attorney-in-fact in the manner prescribed for service of summons in civil actions.” N.C. Gen. Stat. § 32A-13(a). A durable power of attorney that is not registered in an office of the register of deeds in North Carolina can be revoked by “the death of the principal, any method provided in the power of attorney, being burnt, torn, canceled, obliterated, or destroyed, with the intent and for the purpose of revoking it, by the principal himself or by another person in his presence and by his direction, while the principal is not incapacitated or mentally incompetent; or a subsequent written revocatory document executed and acknowledged in the manner provided herein for the execution of durable powers of attorney by the principal while not incapacitated or mentally incompetent and delivered to the attorney-in-fact in person or to his last known address by certified or registered mail, return receipt requested.” N.C. Gen. Stat. § 32A-13(b). “As to acts undertaken in good faith reliance upon an affidavit executed by the attorney-in-fact stating that he did not have, at the time of exercise of the power, actual knowledge of the termination of the power by revocation pursuant to the provisions of G.S. 32A-13(b) or by the principal’s death, such affidavit is conclusive proof of the nonrevocation or nontermination of the power at that time. This section does not affect any provision in a power of attorney for its termination by the expiration of time or occurrence of an event other than an express revocation.” N.C. Gen. Stat. § 32A-13(c).
There Are Limitation On The Durable Power of Attorney
The relevant statute reads “A power of attorney executed prior to October 1, 1988, pursuant to G.S. 47-115.1 as it existed prior to October 1, 1983, shall be deemed to be a durable power of attorney as defined in G.S. 32A-8.” N.C. Gen. Stat. § 32A-14(a). “A power of attorney under the provisions of this Article may refer to Chapter 32B as the same is set out in Chapter 626 of the 1983 Session Laws. “N.C. Gen. Stat. § 32A-14(b). “Notwithstanding any other provision of this Chapter, no attorney-in-fact may exercise powers described in G.S. 36C-6-602.1(a) to alter the designation of beneficiaries to receive property on the settlor’s death under the settlor’s existing estate plan. This subsection shall not impair the authority of an attorney-in-fact to make gifts of the principal’s property, as provided in Articles 2A and 2B of this Chapter.” N.C. Gen. Stat. § 32A-14(c).