Colorado Power of Attorney Hot Powers
In addition to standard powers that are normally found in a power of attorney, there are specific laws for including certain other powers, known as hot powers. A hot power is one that is specifically addressed by state law.
A power of attorney authorizes an agent to act on behalf of a principal, using due care, competence and diligence, for the best interest of the principal. The principal retains power.
Hot powers should be used with caution, because they grant more authority to the agent, and have more potential for problems by an abusive, dishonest, negligent or incompetent agent. They can significantly reduce the principal’s property or change the principal’s estate plan.
On January 1, 2010, the Uniform Power of Attorney Act (UPOAA) became effective law in Colorado. The act defines procedures for creating and using a power of attorney in Colorado. About half of the states have implemented UPOAA.
As a result of the new law, Colorado no longer allows for assignments of certain hot powers with broad and general language, such as “authority over all my personal finances.” They must be granted with express language.
The sample POA form included in the Colorado statutes includes the following warning:
CAUTION: Granting any of the following will give your agent the authority to take actions that could significantly reduce your property or change how your property is distributed at your death. INITIAL ONLY the specific authority you WANT to give your agent.
CRS 15-14-724 Authority that Requires Specific Grant
Colorado statute 15-14-724 lists the hot powers that require specific authority in a power of attorney.
An agent under a power of attorney may do the following on behalf of the principal, or with the principal’s property, only if the power of attorney expressly grants the agent the authority, and exercise of the authority is not otherwise prohibited by another agreement or instrument to which the authority or property is subject:
Trusts: Create, amend, revoke, or terminate an intervivos trust (living trust);
Gifts: Make a gift;
Survivorship: Create or change rights of survivorship;
Beneficiaries: Create or change a beneficiary designation;
Delegating: Delegate authority granted under the power of attorney;
Annuities: Waive the principal’s right to be a beneficiary of a joint and survivor annuity, including a survivor benefit under a retirement plan;
Fiduciary power: Exercise a power held by the principal in a fiduciary capacity that the principal has the authority to delegate;
Exercise a power to nominate, appoint, or remove a fiduciary or to consent, veto, or otherwise participate in the designation or changing of a fiduciary; or
Exercise a power to direct a fiduciary in the exercise of a power of the fiduciary with respect to property subject to the fiduciary relationship, including, but not limited to, a power to direct investments, or to consent, veto, or otherwise participate in controlling the exercise of such a power.
Disclaim property or appointment: Disclaim or release property or a power of appointment;
Except for the exercise of a general power of appointment for the benefit of the principal, to the extent that the agent is authorized as provided in section 15-14-734, or
for the benefit of persons other than the principal, to the extent that the agent is authorized to make gifts as provided in section 15-14-740, exercise a power of appointment; or
Except with respect to an entity owned solely by the principal, exercise powers, rights, or authority as a partner, member, or manager of a partnership, limited liability company, or other entity that the principal may exercise on behalf of the entity and has authority to delegate.
Protective Measures When Authorizing Hot Powers
Trust, but verify. For the protection of the principal, it is good practice to include some type of monitoring of the agent’s actions. This might include ongoing reviews by a third party of financial statements for bank accounts, investment accounts, credit card accounts, tax returns, will and trust documents, real estate documents, motor vehicle titles, insurance policies, annuity policies, contracts, gifts, household inventories, and business financial records, if applicable.
The agent is required to keep a record of all receipts, disbursements, and transactions made on behalf of the principal, but, a dishonest agent might keep false or incomplete records. So, it would be better to view records directly from the source, such as bank, credit card and investment statements.
A trusted family member might serve as a monitor or protector, or an independent professional might be hired, such as an accountant, bookkeeper, secretary, virtual assistant or daily money manager. The monitor could be authorized to report abnormal or suspicious activity to the principal, social services, a government agency, an attorney, or another party or adviser.
CRS 15-14-714, Agent’s duties, requires the agent to disclose records when ordered by a court or requested by the principal, a guardian, a conservator, another fiduciary acting for the principal, a governmental agency having authority to protect the welfare of the principal, or, upon the death of the principal, by the personal representative or successor in interest of the principal’s estate.
Health care providers taking care of the principal may be required to report suspicion or evidence of abuse or exploitation to Adult Protective Services.
Another method of adding protection is to use co-agents, and require the approval of both co-agents to exercise any hot powers, or for transactions over a stated dollar amount. In case co-agents cannot agree, a tie-breaking procedure is needed, such as a vote from an attorney, accountant, tax adviser or financial adviser.
CRS 15-14-717, Agent’s liability. If an agent is found to have violated his duties, he must restore the principal’s property and reimburse for attorney fees and costs. He may also be subject to civil or criminal liability for financial abuse or fraud.
Sample Form: Form Power of Attorney Monitor Agreement, not legal advice, use at your own risk.
Contact an estate planning attorney or elder law attorney for legal advice on how to use a power of attorney, including hot powers, monitoring and protective measures.
[Disclaimer: This information is not legal advice.]