Best to avoid this tricky situation by learning in advance exactly what documents your product provider needs to act on a power of attorney, Pankauski says. Linda Whitton, professor at Valparaiso University School of Law in Indiana, says the greatest problems with power-of-attorney documents typically come once a principal is incapacitated. The agent presents the document to conduct a transaction, only to be told that the power of attorney must be on the institution's own form. The problem is, it's too late to get the principal to sign the form. Families often find the time and expense involved in getting the power of attorney accepted more costly than just getting a guardianship.

Whitton was involved in the 2006 Uniform Power of Attorney Act, which several state legislatures are expected to introduce this year to help avoid these situations. Already adopted in New Mexico, the new rule is expected to make power-of-attorney documents more portable nationwide. Under the rule, only a power-of-attorney document plus a picture ID is necessary to prove who the person holding the power is, according to John P. Burton, chair of the NCCUSL committee that drafted the act.

The agent may be required to sign a document certifying that he or she is the agent. A statement saying that the principal who gave the power of attorney is still alive may also be required. That's because a power-of-attorney document becomes invalid once the principal dies. But if the rules are correctly followed, fiduciaries may gain some protection from lawsuits.

In the meantime, what should you do if your client needs to draw up a power of attorney?
Attorneys unanimously agree that it is most important for your client to choose someone 100% trustworthy. The person should live nearby, and have the time and experience to handle the duties. The agent, or power-of-attorney appointee, is generally considered a fiduciary and can be sued if something goes wrong.

Clients might also consider giving power to remove the trustee to someone who has no authority over the assets-say, a trusted certified public accountant or lawyer. Also, the client should name successors.

Or the client might have the court appoint a disinterested "special master" or magistrate capable of appointing a new trustee, Pankauski suggests.
Some attorneys say an agent appointed with power of attorney might be required to provide monthly accounting statements to a lawyer or accountant. It may be wise to name co-agents, which would require two signatures.

However, rather than subject an agent to this hassle, it might be better in the power of attorney document to very carefully limit the authority of the agent holding the power of attorney, Pankauski advises.

For example, a document might say the power of attorney agent cannot "alter or amend" accounts that your client owns with anyone else. Or he or she might specifically state that the agent can't "alter or amend" any beneficiary designations on life insurance contracts or retirement accounts. Such accounts are particularly ripe areas for abuse.

Does your client want the power of attorney agent to be able to make gifts to people if he or she is incapacitated? Sometimes this may be necessary for tax planning. Perhaps distributions need to be made to trusts or certain insurance premiums need to be paid. Does a power holder want to be able to make gifts to himself or herself? The document might spell out these powers and the specific amounts, allowing for inflation.

Whitton notes that the new uniform power of attorney act offers a list of so-called "hot powers." Financial advisors might use it as a checklist with clients to make sure important issues are addressed (see sidebar).