Which is a very good question. Although, unfortunately, I think my answer will not only be lengthy (there are many points to consider) but also not what many would prefer to hear. At any rate, I have decided to break this issue down into a few posts.
In this first part, we will examine the standard of competency required to execute a valid POA.
The first thing to consider is that the donor (the person granting the POA) must be high functioning enough to be competent to make one.
When is it too late to give a power of attorney?Although written from the point of view of the more or less typical person, this excerpt still makes the point.
A - It is too late to give a power of attorney if you are not mentally competent. Competency is sometimes an issue where the person wishing to give a power of attorney is suffering from progressive dementia. In this situation, it may be necessary to get a medical opinion as to whether the person is competent.
In my opinion, if a person is capable of executing a valid POA then they probably don't need (or at least wouldn't qualify for) guardianship in the first place. Meaning that, the way I see it, the law would take the view that if they are legally capable of executing a valid POA, they are legally competent to manage their own affairs.
But although I am fairly confident that the standard of competency required to execute a POA is the similar to the legal standard of competency to be able to enter into a contract, for example, I have come across a few lawyers who seem to think otherwise, that as long as the person has the ability to understand what they are signing, it is okay. Which would mean, if correct, that creating a "simplified" POA (simplified to the ability of understanding of the donor) would be effective.