What Makes an Arbitration Agreement Unenforceable?
Is it easy to get out of arbitration in South Carolina? That’s the question we’ll look at today.
Arbitration agreements and clauses are ubiquitous these days, from employment contracts to online End-User License Agreements. Arbitration is often touted as being a faster, less expensive, and more private alternative to civil lawsuits and civil court. But arbitration agreements can put individuals at a disadvantage by requiring them to waive their rights or burden them with lopsided terms. This may prompt them to try to get out of arbitration.
Maybe you’re a customer or consumer who doesn’t want to be bound to arbitration. Or maybe you’re a business owner or professional who wants to ensure the arbitration agreements in your contracts are enforceable. Whatever your situation, you should understand when arbitration is enforced and when it’s not in South Carolina so you can better look after your own interests.
First we’ll look at what makes a contract enforceable and unenforceable in South Carolina, then dive into some cases to see how these issues played out in the courts.
Are Arbitration Agreements Always Binding in South Carolina?
Generally yes, but occasionally no.
Valid arbitration agreements are enforceable in South Carolina. In the 2020 case Weaver v. Brookdale Senior Living, Inc. (which we’ve previously covered here), the South Carolina Court of Appeals stated that there is “potent” public policy favoring arbitration when the terms are entered into validly.
What constitutes a valid and enforceable contract in South Carolina? To start, parties signing the contract must have the authority and capacity to understand and enter into such an agreement. The contract also must:
- Be mutually agreed upon
- Be freely entered into
- Include “consideration,” an exchange of values between the parties, such as money or the promise of a service
- Not violate public policy
Since South Carolina courts view and treat arbitration agreements as they do any other part of a contract, these same standards apply.
In short, there’s no way to “get out” of a valid arbitration agreement in South Carolina.
Reasons an Arbitration Agreement May Be Unenforceable (Or, How to Get Out of Arbitration)
Arbitration agreements are not enforceable in South Carolina if they are not valid. Arbitration clauses within a contract may also be found to be unenforceable.
Reasons an arbitration agreement may found to be unenforceable (this list is not exhaustive):
- Absence of signature
- Fraud
- Duress or coercion
- Lack of authority to sign the agreement
- Lack of capacity (aka sound mind)
- Lack of mutual agreement
- Lack of consideration
- Unconscionability
- Unclear language
Proving an arbitration agreement is unenforceable can be difficult, but it does happen. Next we’ll look at cases where arbitration agreements were successfully challenged in court.
Lack of Authority to Enter into Arbitration Agreement without Power of Attorney: Solesbee
In some cases, the enforceability of an arbitration agreement comes down to small details. That’s what happened in the 2022 South Carolina Court of Appeals case The Estate of Mary Solesbee v Fundamental Clinic (read it here).
The Background
Mary Solesbee entered Magnolia, a skilled nursing facility in Spartanburg County, in June 2016. Her son, Allen Dover, signed the admission agreement and a separate arbitration agreement when she was admitted. On July 14, 2016, Solesbee was transported to a hospital, where she died two weeks later.
Connie Bayne, Solesbee’s personal representative, then filed a wrongful death and survival action alleging nursing home negligence for actual and punitive damages. In response, Magnolia filed a motion to compel arbitration.
The trial court denied the motion to compel arbitration, finding that Dover did not have the authority to sign the arbitration agreement on behalf of his mother and rendering it invalid. On appeal, the SC Court of Appeals agreed with the trial court’s decision to deny Magnolia’s motion to compel arbitration.
The Details
The appeals court determined that the admission agreement and the arbitration agreement were two separate documents. Magnolia argued that the court should have found the two were merged, since merger is usually presumed when multiple documents are signed by the same parties at the same time as part of the same transaction.
But the court says that’s not always so. It found that the two documents were indeed separate because:
- The admission agreement provided it was governed by South Carolina law, while the arbitration agreement provided it was governed by federal law
- The arbitration agreement referenced the admission agreement, showing it was conceived of as a separate document
- Each document was separately paginated with its own signature page
Additionally, the arbitration agreement was not a requirement for admission to Magnolia.
This matters because Bayne (Solesbee’s representative who brought the suit) argued that Dover (her son) did not have the authority to sign the arbitration agreement on his mother’s behalf. He did not have power of attorney for his mother at the time (and had only briefly possessed such powers years earlier before they were revoked) and did not have the authority to sign under any other legal theory.
He did, however, have the authority to sign the admission agreement under South Carolina’s Adult Health Care Consent Act. This act is limited to making health care related decisions only, and therefore did not give Solesbee’s son the power to sign the separate arbitration agreement.
Ultimately, because of how Magnolia wrote and structured its contracts, the court found that it could not compel arbitration.
Other Examples of Unenforceable Arbitration Agreements in South Carolina
Here are brief overviews of three other South Carolina cases in which arbitration agreements or sections were found to be unenforceable.
Lack of Authority Even with Power of Attorney: Arredondo
In Arredondo v. SNH SE Ashley River Tenant, LLC (2021), the South Carolina Supreme Court found that a daughter did not have the authority to sign an arbitration agreement on behalf of her father, despite being his agent under both a health care power of attorney and a general durable power of attorney. This case came down to the very specific wording in the powers of attorney, and it demonstrates how enforceability of a contract can hinge on language and word choice.
(The daughter also contended that the agreement was unconscionable and therefore unenforceable, but the court did not address this issue.)
Read more in detail about powers of attorney and the full story behind Arredondo in our blog on this case here.
Lack of Authority Due to Timing: Stott v White Oak Manor
In Stott v White Oak Manor, Inc. (2019), the South Carolina Court of Appeals found that a niece did not have the authority to sign an arbitration agreement on behalf of her uncle. There are two important elements in this case: One, capacity. The uncle possessed “intact mental functioning” at the time of his admission into a medical facility and therefore had the capacity to enter into agreements himself. Two, timing. A power of attorney that would have given the niece authority to enter into the agreement on his behalf was not recorded – and therefore not valid – until six days after her uncle was admitted to the facility.
Read more in detail about the background and the court’s reasoning in our blog on Stott here.
Unconscionability: Huskins v Mungo Homes
In Huskins v Mungo Homes (2022), the South Carolina Court of Appeals found that a portion of an arbitration clause within a purchase agreement was unconscionable and therefore unenforceable. It found the offending terms were absent of meaningful choice and were oppressive and one-sided, making them unconscionable.
Importantly, only the offending portion was severed from the clause, leaving the rest of the arbitration clause enforceable, and the court affirmed the circuit court’s order to compel arbitration under the newly modified terms.
Read more in detail about the background of this case and about unconscionability in our blog on Huskins v Mungo Homes here.
Understanding Arbitration and Reserving Your Rights
The examples of cases above show just how challenging it can be to get out of arbitration in South Carolina.
As a consumer, customer, or patient, you need to understand that the majority of the time, you are bound to arbitration when you agree to it. However, it’s not a given that you must agree; many contracts and agreements online allow you to opt out in writing within (typically) 30 days of signing the agreement. The next time you encounter a wall of text online that tells you to click the “I Agree” button, first look in the fine print for instructions on how to opt out of compelled arbitration and reserve your rights.
As a business owner or professional drafting an arbitration agreement or arbitration clause, you should know that the enforceability of your agreement can come down to terms, word choice, and other seemingly small details. It’s also important to ensure that the parties signing your agreement have the authority to do so.
Get Help with Contracts and Business Law in South Carolina
For help drafting or understanding arbitration agreements, employment contracts, and other contracts, contact Gem at the Gem McDowell Law Group. With over thirty years of experience, Gem along with his team helps South Carolina business owners grow their businesses and protect their interests and can represent individuals in contract disputes. Call to schedule your free consultation today at the Mount Pleasant office or Myrtle Beach office by calling 843-284-1021 today.
What Powers Does a Power of Attorney Give Me?
A power of attorney (POA) is a document that authorizes a person (the “agent” or “attorney in fact”) to act on behalf of another person (the “principal”). Different kinds of POAs grant different kinds of authority. (For more on the basics of the financial power of attorney, the health care power of attorney, and the difference between limited, general, durable, and springing powers of attorney, check out this blog.)
If you’ve been named as an agent in a power of attorney, or if you are the principal, you might be wondering exactly what powers a power of attorney grants.
The answer is that it depends. The exact powers you have as an agent, or grant as a principal, depend on the wording of your power of attorney. That’s why it’s important to know exactly what’s in your POA(s). Sometimes the powers granted come down to the interpretation of just a word or two, as one woman who signed a document on behalf of her father discovered in a recent South Carolina Supreme Court case, Arredondo v. SNH SE Ashley River Tenant, LLC (read the opinion here). That case is discussed in detail below to show just how important the language in your estate planning documents can be.
But first, here are some examples of powers that POAs commonly grant to agents.
Powers Commonly Granted by a Power of Attorney
Different types of POAs grant different types of powers. Here are some examples.
A health care power of attorney, also called a medical power of attorney, may include the power of the agent to:
- Make decisions about the principal’s treatment, medication, surgery, pain relief options, and other care
- Discharge the principal from the hospital or other facility
- Access the principal’s medical records
- Sign documents related to the principal’s care
A financial power of attorney (which may be “general” or “durable”) may include the power of the agent to:
- Open, close, and access bank accounts and other financial accounts
- Buy and sell the principal’s property, like their house or stocks and bonds
- Collect debts owed to the principal and settle debts owed by the principal
- Financially care for principal’s family with assets from the principal’s estate
- Sign legal documents
Note that these lists are not exhaustive.
Both types of POAs typically include language to the effect that the agent must act in the best interest of the principal. Generally, the agent is not held liable for mistakes made in good faith when carrying out their role as agent.
Words Matter: Close Reading of Powers of Attorney in Arredondo
Remember that the bullet points above are just examples of the types of powers that POAs can grant. Because POAs are not standardized documents, it means that the exact powers granted depend on the exact wording in an individual power of attorney. Arredondo v. SNH SE Ashley River Tenant, LLC is a case in point. At the heart of the matter is whether a woman was authorized under a POA to sign an arbitration agreement on behalf of her father.
We’re going into detail here in order to show just how important individual words and phrases can be in legal documents. It’s also an interesting look at the way different courts in South Carolina interpret the same language to come to different conclusions.
The Background
In October 2012, Thayer W. Arredondo placed Hubert Whaley, her 84-year-old father suffering from dementia, into an assisted living facility in Charleston owned by the Respondents in the case. At the time her father was admitted, Arredondo had authority to act as her father’s agent under two separate powers of attorney, a General Durable Power of Attorney (GDPOA) and a Health Care Power of Attorney (HCPOA).
As her father’s agent, she signed several documents when they first arrived at the facility. She signed more a while later, including an arbitration agreement. The agreement waived the right to a trial by judge or jury and required arbitration for claims over $25,000, barred appeals, prohibited punitive damages, limited discovery, and gave Respondents the unilateral right to amend the agreement.
The Lawsuits
In February 2014, Whaley was admitted to Bon Secours St. Francis Hospital where he died six days later. Arredondo brought a wrongful death claim against Respondents, stating that the Respondents’ negligence and recklessness caused her father’s death. The Respondents moved to compel arbitration based on the agreement she had signed.
Arredondo argued that 1) the POAs that named her as an agent for her father did not give her the authority to sign the arbitration agreement, so she was not bound by it, and 2) even if they had, the agreement was “unconscionable” and therefore unenforceable.
The circuit court found in favor of Arredondo, ruling that neither POA gave Arredondo the authority to sign the arbitration agreement and that even if they had, the agreement was unconscionable. The South Carolina Court of Appeals reversed this decision, holding that Arredondo did have the authority and that the agreement was not unconscionable.
The case then went to the Supreme Court of South Carolina, which reversed the appeals court’s decision, finding that Arredondo didn’t have authority to sign the agreement under the POAs. It did not address the question of whether the agreement was unconscionable.
Interpreting the Language in the POAs
How is it that the appeals court and the supreme court came to opposite conclusions?
First let’s look at the relevant sections in the POAs.
The general durable POA gave Arredondo the power “To make, sign, execute, issue, assign, transfer, endorse, release, satisfy and deliver any and all instruments or writing of every kind and description whatsoever, whether sealed or unsealed, of, in or concerning any or all of my business affairs, property or other assets whatsoever, including all property, real, personal or mixed, stocks, securities and choses in action, and wheresoever situated, including, without limiting the generality hereof thereto, notes, bonds, mortgages, leases, deeds, conveyances, bills of sale, and assignments, endorsements, releases, satisfactions, pledges or any agreements concerning any transfers of the above or of any other property, right or thing.” (Emphasis added.)
The health care POA gave Arredondo the power “To take any other action necessary to making, documenting, and assuring implementation of decisions concerning my health care, including, but not limited to, granting any waiver or release from liability required by any hospital, physician, nursing care provider, or other health care provider; signing any documents relating to refusals of treatment or the leaving of a facility against medical advice, and pursuing any legal action in my name, and at the expense of my estate to force compliance with my wishes as determined by my agent, or to seek actual or punitive damages for the failure to comply.” (Emphasis added.)
At first reading, these long paragraphs of dense legalese sound (at least to the layperson) like they cover pretty much everything. Surely Arredondo was authorized under one or both of these paragraphs to sign the arbitration agreement in question, wasn’t she?
But the SC Supreme Court’s close reading found that this wasn’t so, and it countered all the arguments of the Respondents and the SC Court of Appeals.
Argument 1: “Choses in action”
The GDPOA contains an old term that comes from common law and isn’t used often in modern law, “choses in action.” The SC Supreme Court defines it here as “a type of property interest or a proprietary right to a claim or debt.” The appeals court interpreted the term broadly enough to encompass the signing of the arbitration agreement. But the supreme court agreed with Arredondo that the appeals court’s definition was too broad, and “the arbitration agreement did not concern a chose in action or any other property right Whaley possessed at the time Arredondo signed it.”
(As a side note, Justice Few wrote a separate concurring opinion making known his dislike of the continued use of the imprecise, “obsolete,” and “antiquated” term.)
Argument 2: “Any other property, right or thing”
The SC Court of Appeals also stated that Arredondo was authorized to sign the arbitration agreement under the GDPOA because the authority it gave her extended to “any other property, right or thing.”
But this short phrase is taken out of context, the supreme court says; a longer reading of the text changes its meaning. Arredondo was given the authority to execute “any agreements concerning any transfers of the above or of any other property, right or thing.” (Emphasis added by the supreme court.) The arbitration agreement was essentially a series of waivers and had nothing to do with transferring any kind of “property, right or thing”; therefore, this language in the GDPOA doesn’t give Arredondo the authority, either.
Argument 3: Title of GDPOA
The Respondents argued that the very title of the POA – “General Durable Power of Attorney” – was intended to give Arredondo broad authority to act as an agent for her father’s care. But the supreme court states that it does not rely on a title, but rather the provisions within the POA to determine what the scope of her authority was, continuing, “Certainly, the GDPOA could have been drafted to give Arredondo the broad power to sign all documents Whaley could sign himself or otherwise do anything Whaley could do himself, but it was not so drafted.”
Argument 4: “Necessary”
Moving on to the HCPOA, the supreme court asked: Was it “necessary” for Arredondo to sign the arbitration agreement in order to act in the best interest of her father’s health?
Arredondo submitted an affidavit in which she said that the facility representative told her she had to sign the arbitration agreement for her father to be admitted. But the Respondents “consistently maintained” that signing the arbitration agreement was not a requirement for Arredondo’s father to be admitted to the facility. And indeed, by the time Arredondo signed the agreement, her father had already been admitted and given a room. At that point, Whaley had statutory protections and could not be discharged from the facility on the basis of Arredondo refusing to sign the arbitration agreement.
Since signing the arbitration agreement was not “necessary,” it was not authorized under this HCPOA.
Argument 5: “Required”
Similarly, was signing the arbitration agreement “required” by the facility to provide the care Arredondo’s father needed?
By the same reasoning above, the answer is no. Whaley was already admitted to the facility before Arredondo signed the agreement, so it could not have been a requirement.
Argument 6: Authority to pursue legal action
The appeals court also held that the clause above gave Arredondo the authority to pursue any legal action in her father’s name, which included signing the arbitration agreement. But the supreme court notes that the language gives Arredondo authority only to pursue legal action to “force compliance,” which is not applicable here. Citing a Kentucky Supreme Court decision Wellner, the South Carolina Supreme Court held that a pre-dispute arbitration agreement was not authorized by the HCPOA as it did not constitute the pursuit of legal action.
The Takeaway: Know What’s in Your POA
The SC Supreme Court went point by point and found that none of the language in either of the powers of attorney gave Arredondo authority to sign the arbitration agreement as her father’s agent, and it reversed the decision of the SC Court of Appeals.
While this ultimately worked out in Arredondo’s favor, it came at the cost of a long legal battle, during which time she was not able to pursue her original claim against the Respondents.
You cannot rely on the South Carolina Supreme Court finding in your favor. The easier thing to do is to know exactly what’s in any POA you sign or that names you as an agent. Don’t assume anything! Read your POA closely and take it to an estate planning attorney to discuss it if you’re unclear.
Personalized Estate Planning and Advice
For help with estate planning in South Carolina, including powers of attorney, call attorney Gem McDowell of the Gem McDowell Law Group. Gem believes that every situation is different and that estate planning documents should be tailored to the individual and family to reflect their unique circumstances.
Gem and his team can help you draft or revise powers of attorney as well as wills, trusts, and other estate planning documents. They can also give advice on contracts and other legal documents before you sign them so you know exactly what you’re signing and you have someone looking out for your best interests. Call the law office, located in Mt. Pleasant and serving the Charleston area and beyond, today at 843-284-1021 to schedule a free, no-obligation consultation.
Timing Is Everything: When Powers of Attorney Aren’t Bulletproof
In the previous blog, we looked at the basics of financial and medical powers of attorney. Today, we’re going to look at how these documents are not as straightforward as you think, courtesy of a case heard by the South Carolina Court of Appeals, Stott v White Oak Manor, Inc. (read it here).
Facts and Background
Jolly P Davis (Decedent) was taken to Spartanburg Regional Medical Center on December 22, 2012 by EMS due to dropping oxygen saturation levels. Less than two weeks later, he was transferred to White Oak Manor for rehabilitation and care. Upon admission, White Oak found that he possessed “intact mental functioning” and was able to correctly answer questions about his age, location, the current date, and so on. Over the next couple weeks, he was transferred between the two facilities several times until he died on January 16, 2013.
Leading up to this, Decedent’s niece, Hilda Stott, was named as the agent in a durable POA for finance and a durable HPOA for Decedent in documents executed May 11, 2012. (A durable POA remains in effect even when the principal is incapacitated, so the agent can make decisions when the principal is, for example, in a coma or suffering from dementia.)
When Decedent was admitted to White Oak, Stott signed papers on her uncle’s behalf, including an Arbitration Agreement. The durable POA for finance was recorded on January 8, 2013, six days after Decedent was admitted to White Oak. The durable HPOA was never recorded. (As a reminder, South Carolina law requires that a POA, but not an HPOA, be recorded with the county in order for an agent to exercise their powers after the principal becomes incapacitated.)
On December 16, 2015, Stott filed a wrongful death suit against White Oak, alleging Decedent was “overmedicated and dehydrated,” which led to his death. White Oak filed a motion to compel arbitration based on the Arbitration Agreement that Stott had signed.
The Circuit Court’s Findings
The case when to the circuit court. Stott argued that even though she signed the Arbitration Agreement on behalf of Decedent, she actually did not have the authority to do so under the durable POA for finance and therefore was not bound to the Arbitration Agreement.
White Oak argued but the court ultimately sided with Stott, finding that (1) Decedent had full capacity to sign the Arbitration Agreement at the time of admission, (2) the durable POA for finance did not become effective until after the Arbitration Agreement was signed because it hadn’t been recorded in time, and (3) the durable HPOA also didn’t authorize Stott to sign the Arbitration Agreement because Decedent was competent when it was signed.
White Oak appealed.
The Effectiveness of the Durable POA for Finance
Here’s where things get rather complicated. Stott signed the Arbitration Agreement on January 2, 2013, but didn’t record the durable POA for finance until January 8, 2013. She argued that she didn’t have the authority to sign the Arbitration Agreement on Decedent’s behalf on the 2nd. But, White Oak noted, the agreement contained an opt-out clause giving the signer a limited time period in which to opt out of the agreement, after which the agreement “will remain and continue in full force and effect.” (Emphasis added by the SC Court of Appeals.) White Oak argued that because the agreement didn’t become binding until the opt-out period expired on January 19, 2013, Stott did, in fact, have the authority to sign it because by then, the durable POA for finance had been recorded – 11 days earlier.
The Court of Appeals disagreed, citing the language used in the opt-out clause. It was stated so that the party would “no longer” be bound by it, and after the opt-out window closed, it would “remain and continue” – language indicating that the agreement was in effect the entire time during the opt-out window. Therefore, because the durable POA for finance had not been recorded by the time she signed the Arbitration Agreement, Stott did not have the power to sign it on Decedent’s behalf.
The Effectiveness of the Durable HPOA
The other issue the Court looked at was whether Stott had the authority to sign the Arbitration Agreement based on a valid durable HPOA. White Oak argued that she did; the Court disagreed.
That’s because Decedent’s durable HPOA contained a provision entitled “EFFECTIVE DATE AND DURABILITY” that stated it would become “effective upon, and only during, any period of mental incompetence.” In other words, it was a springing POA, discussed in the previous blog, which only becomes effective once the principal becomes incapacitated.
White Oak’s own evaluation of Decedent found him to be mentally intact with full capacity upon admission and at the time Stott signed the Arbitration Agreement. Therefore, the Court concludes, the durable HPOA was also not effective to authorize Stott to sign the agreement on her uncle’s behalf.
In short, the Arbitration Agreement is invalid and White Oak cannot compel arbitration of Stott’s claims of wrongful death and survival actions.
Confusion and Lack of Clarity
In this case, the powers of attorney were executed well in advance of any need for them. They were both clear in their intentions, and the durable HPOA even used the language provided by statute. Neither POA was disputed. Decedent’s mental capacity was not called into question by White Oak Manor. And still, confusion occurred regarding whether the agent had authority to sign for the principal.
This case illustrates how complex matters of estate planning can be, even when they appear simple on the surface. This is why it’s so important to work with an experienced estate planning attorney like Gem McDowell to handle your estate planning. Gem has over 25 years of experience helping individuals and families with estate planning in South Carolina. Call him and his associates at the Gem McDowell Law Group in Mt. Pleasant, SC today at 843-284-1021 to schedule a free consultation to discuss your estate planning needs.
Do You Know the Limits of Your Powers of Attorney?
The power of attorney for finance and the power of attorney for health care are two essential documents of estate planning. These documents give a person (the agent) the power to make, respectively, financial or health-related decisions on behalf of another person (the principal). If you have gone through estate planning, you may have had one or both of these documents drawn up for you. (If you haven’t done any estate planning, now is the time!)
But having these documents may give you a false sense of security. You should know the types, conditions, and limitations of powers of attorney so that if you ever need to rely on them – either as the principal or the agent – you are already informed and know what they can and can’t do.
The Powers of Financial and Health Care Powers of Attorney
A power of attorney for finance (POA) gives an agent the power to make financial decisions on behalf of the principal, such as buying or selling property including real estate, accessing bank accounts, managing investments, signing contracts, or borrowing money. The principal can decide which particular powers they want their agent to have.
Similarly, a health care power of attorney (HPOA) gives an agent the power to make health care decisions on behalf of the principal, such as which treatment plan to follow, doctors to use, medication to give, and arrangements for care. It is a type of advance directive and is called different things in different states, including medical power of attorney or healthcare proxy.
What’s the Difference Between Limited, General, Durable, and Springing Powers of Attorney?
There are different types of powers of attorney and the kind of POA that’s best for you depends on your specific goals.
Limited. A limited power of attorney gives the agent the power to act in a limited capacity and often for a specified time period. This is useful if, for example, you’ll be traveling on the day of a real estate closing, and you want your spouse or business partner to be able to sign for you, in which case you’d want a limited POA for finance. Or if you’re going under the knife and want to give your sister the power to make decisions for you relating to the operation while you’re incapacitated, you’d want a limited HPOA.
General A general power of attorney does not limit the agent’s powers to a particular task or time period, but gives them as much discretion to control and direct the principal’s affairs as the principal chooses. The powers of this type of POA last until the principal’s death or until they revoke the POA.
Durable. A durable POA is one that is in effect even when the principal is incapacitated and unable to make their own decisions, for instance, because they are under anesthesia, have dementia, or are in a coma. South Carolina also recognizes that incapacity can also be because a person is missing, detained or incarcerated, or abroad and unable to return to the U.S. If the POA is not durable, then the agent’s powers end once the principal is incapacitated.
For the HPOA, it makes sense that you’d want it to be durable, because the point of having an HPOA is for someone else to make medical decisions for you when you’re unable to. But for a POA for finance, a principal may want a limited POA to be non-durable, as in the example above where the principal is traveling during a closing. A durable POA for finance is also common between spouses, so one may make decisions for the other in the case of incapacity.
Springing. Unless stated otherwise, in South Carolina the powers in a power of attorney commence immediately. However, some people choose to have a springing POA, where the powers “spring” into effect only once the principal becomes incapacitated. So while a durable POA remains effective once the principal becomes incapacitated, a springing POA only becomes effective once the principal becomes incapacitated.
Someone may feel more secure with this type of POA because they know that their agent doesn’t have any powers to make decisions on their behalf while they have mental capacity, and therefore do something they (the principal) wouldn’t want done. The trouble with this kind of POA, however, is that it can be extremely difficult to pinpoint the moment someone becomes incapacitated, especially in cases of dementia and Alzheimer’s, where a person can have good days and bad days. This can make it impossible to effectively use the POA for its original purpose. This is why we here at the Gem McDowell Law Group do not do springing POAS for our estate planning clients.
South Carolina Requires Powers of Attorney to Be Recorded
On January 1, 2017, South Carolina’s Uniform Power of Attorney Act went into effect, requiring durable POAs to be recorded in order for the agent to exercise their powers once the principal has become incapacitated. (POAs made before this date are subject to the laws that were in effect at the time.) Note that a POA does not have to be recorded for the agent to exercise powers while the principal still has capacity.
How do you record a power of attorney? If you work with an attorney to draft your estate planning documents, they will typically do it for you. (You can ask just to be sure.) If you printed your own off the internet or otherwise didn’t go through an attorney, you may contact your county clerk for instructions on how to record your POA. It must be done so in the same manner as a deed in the county where the principal resides at the time, and may be recorded before or after the principal’s incapacity.
Do You Know What Type Your Powers of Attorney Are?
You can see that with so many different types of powers of attorney, the occasional difficulty of pinpointing when incapacity occurs, and South Carolina’s relatively new requirements for recording POAs, things can get confusing. That’s why it’s so important to review the documents you’ve signed and understand exactly what powers you, as the principal, are giving your agent and when they come into effect.
For comprehensive estate planning that is tailored to your life and the needs of your family, contact Gem McDowell and his associates at the Gem McDowell Law Group in Mt. Pleasant, SC. They can help you draft estate planning documents including powers of attorney, wills, and trusts that will give you peace of mind and protect your family. Call to schedule a free consultation at 843-284-1021.
The 5 Essential Estate Planning Documents
When you come to Gem McDowell Law Group to work on your estate plan, we discuss five documents together: a will, a trust, a living will, a healthcare power of attorney, and a durable financial power of attorney. You may not need them all, but we can figure that out together.
Here’s some information on what each document is, what it can and can’t do, and some things you should consider as you go through the estate planning process.
The Will
A will is a document you create to decide what will happen to your estate when you die. In the state of South Carolina, it must be signed in the presence of a witness and a notary to make it legally binding.
There are a few types of wills, but for people with a relatively small estate, a simple will is a good choice. When we draw up a simple will, we tailor it to each client, but we typically include the following sections in every will:
First, the will states that your mortgage, outstanding bills, and funeral costs are to be paid from your estate. Next, all taxes are to be paid. Unless your estate is worth over $5.34 million (as of 2015), and you want to pass it on to someone other than your spouse, you will not need to pay estate tax.
Next, we’ll authorize you to draft a handwritten memorandum. A handwritten memorandum is a useful document because it allows you to supplement your will anytime afterwards with no notary, no witness, and no attorney’s fees. You can use it to leave certain assets – generally collectible assets, such as a stamp collection – to a particular person. You cannot use it to transfer real estate, cash, or stocks and bonds. Once the handwritten memorandum has been authorized in the will, you can create one later as your wishes change and your estate changes (within limits). Simply write your wish in your own handwriting (e.g., “I, John Doe, wish to leave my ancient coin collection to my son Timothy”), and sign and date it.
Then, we talk about what to do with those large assets like real estate, cash, and stocks and bonds. You may want to leave them to your spouse, if he or she survives you, or you may want to pass them on to your heirs, other relatives, friends, or charitable causes, to name a few possibilities. How you choose to distribute your assets is up to you.
Finally, you name the personal representative (aka “executor”) who will administer the will and carry out your wishes. If you have children who are not yet adults, you will name a guardian, the person who will take physical custody of them when you’re gone. And if you create a trust for some or all of your assets, you will need to appoint a trustee.
The Trust
As with wills, there is more than one kind of trust. A common type of trust used in estate planning is called a testamentary trust, and it becomes effective when the last will becomes effective – at death. It is a convenient way to keep assets in trust for a period of time after your death until they are ready to be distributed. Most often in estate planning, it’s used for leaving assets to children, especially if they are not yet adults. Depending on your situation, you may not need a trust at all.
One common way to handle an estate is to leave everything to your spouse. If your spouse has predeceased you, then everything instead goes to the children.
If you have children, you should consider not giving them their inheritance all at once, particularly if they are very young. At Gem McDowell Law Group, we typically suggest giving three “bites of the apple.” That is, they will receive their inheritance in three separate chunks, spaced several years apart. For example, if you are leaving $3 million to your only daughter, you may decide to have her receive $1 million at age 25, $1 million at age 30, and $1 million at age 35. You may also choose to allow access to the trust money outside of the inheritance for four things: health, education, maintenance, and support.
Trusts are the legal documents that make this type of distribution possible.
The trust is overseen by a trustee, whom you name in your will. If your children are not yet adults you will also name a guardian in your will. The guardian (the person with custody of your children) should generally not be the same person as the trustee (the person with access to the money).
Depending on your unique situation, we can discuss other types of trusts you may want as part of your estate plan.
The Living Will
A living will, also called an advance health care directive, gives you the opportunity to make decisions now about your own health care in the future, should you lose the ability to make decisions for yourself. For example, you can decide now, while you’ve still got the power to make decisions, whether you’d want to continue life support if you were in a persistent vegetative state. In South Carolina, the living will also addresses nutrition and hydration.
Living wills become effective only in cases where one of two things is true:
- You are in a permanent state of unconsciousness and death would occur quickly if life support were removed; or
- You have a terminal illness.
From a legal point of view, neither of those situations is a legal standard – it’s a medical one. To make such a determination, South Carolina requires that the attending physician and another, independent physician both examine you and agree on the state of your health.
This matters because family members may argue over what you really intended.
Imagine a scenario where a woman has been in a car crash and is on life support. Her husband wants to take her off life support, which is what she wished for in her living will. The children don’t want to take her off life support, and threaten to sue if he does. Unless two doctors agree on her state and the living will becomes effective, the husband may not be able to carry out his wife’s wishes.
So while a living will is very important, it has some severe limitations. Because of these limitations, you may also want a healthcare power of attorney.
The Health Care Power of Attorney
A health care power of attorney, abbreviated HPOA or sometimes HCPA, can be considered a “backup” to a living will in a sense. If you don’t have a living will, or it can’t be applied (because one of two conditions above hasn’t been certified by two doctors), then your HPOA can be used instead. Both documents should agree with each other, so that one doesn’t say to end life support while the other says to continue, for instance.
While a living will lets you make the decisions for yourself, an HPOA lets someone else make the decisions for you. But as with a living will, you can make your wishes known. You can tell the agent you appoint that you want maximum treatment or not, that you want to donate your organs or not, or that you consent to tube feeding or not. If you feel better leaving those decisions up to your agent, you may also choose to give them the power to decide at the time of treatment.
The health care power of attorney was drafted by the South Carolina Legislature. It is presented in a Q & A format and asks you to consider different scenarios and to make a decision about what you want to happen. At our law office we have you initial each choice so it’s clear that you chose every selection yourself.
The Durable Financial Power of Attorney
With a health care power of attorney, you appoint an agent and give them the power to make healthcare decisions for you according to your wishes. With a durable financial power of attorney, you appoint an agent and give them the power to make financial decisions for you according to your wishes. Depending on your situation, you may or may not want a durable financial POA.
The Peace of Mind
Estate planning documents are some of the most important documents you’ll ever sign. This is not the time to use a one-size-fits-all form. Call Gem McDowell Law Group at (843) 284-1021 to speak with Gem about your estate planning needs. Once you have a solid estate plan in place, you’ll have peace of mind, knowing that your wishes and your family are taken care of.
