What is a durable power of attorney?
Powers of attorney are a crucial part of any estate plan. What you may not realize, however, is that a durable power of attorney –a power of attorney that endures beyond your incapacity –is the most important legal document in your estate planning.
DISCLAIMER: Yes, I am an attorney, but no, I am not your attorney. Nothing in this post is legal advice or creates an attorney-client relationship. This post is merely informative and informational. As always, discuss your personal circumstances with an attorney in your jurisdiction.
What is a power of attorney?
A power of attorney is a document that appoints someone else to make decisions on your behalf. The power of attorney (POA) lists out the attorney-in-fact’s (the person making the decisions) powers.
POAs could give the powers to:
- Transact in real estate
- Open or close bank accounts
- File taxes
- Make business decisions
- Proceed with a legal or estate claim
- Pay bills
- Make health care decisions
- and many, many more.
A general power of attorney delegates powers to an attorney-in-fact while the principal (the person making the POA) has physical and mental competence. It ceases to function after a set period of time or upon the principal’s incapacity.
What is a DURABLE power of attorney?
Durable powers of attorney, on the other hand, grant powers even when the principal lacks physical or mental competence. These are the documents that allow a friend, family member, spouse, or child to make health and financial decisions when you are too old, too sick, or too infirm to do it yourself.
Durable powers of attorney are the absolute best way to make sure that your health and financial wishes are honored even when you are unable to make your own decisions.
While general powers of attorney take effect immediately and expire at a certain time, durable powers of attorney are designed to endure beyond the incapacity of the principal, making them one of the best ways to keep your affairs in order in the event of your incapacity.
RELATED POST: How do I choose my Attorney-in-Fact?
Competence and Powers of Attorney
While general powers of attorney are important to transact day-to-day decisions, durable powers of attorney are about your ongoing care and your dignity.
In the event you are unable to make your own decisions –for mental or physical reasons –your attorney-in-fact steps in.
If the principal is unable to conduct his own business affairs, the primary agent carries out the principal’s wishes. The only way to guarantee you have a power of attorney is to complete a written document.
There is no such thing as an understood POA, a POA created after a person’s incapacity, or a POA that endures beyond death.
Myth-Busting Power of Attorney Fallacies
Many people believe that if they can’t make their own property or medical decisions, that a family member can just step in.
Others believe that they don’t really need something in writing.
However, this simply IS NOT TRUE.
If you are incapacitated –on a ventilator, in a coma, have an advanced neurological disorder–then the bank doesn’t just simply take your daughter’s word for it. Banks, financial institutions, insurance companies, and more require written proof that a person has the right to make decisions on your behalf.
RELATED POST: Estate Planning Myth’s Busted
What happens if you don’t have a Durable Power of Attorney?
The banks, financial institutions, insurance companies, and more require one of 2 items. Either they require a (1) durable power of attorney, or (2) they require a court order.
If you fail to make a power of attorney during your capacity, then your friends, family, or loved ones have to prove to the court that you are incapacitated and that they are suitable to make your decisions.
Then, your family has to prove that the decisions they make are appropriate by reporting to the court. The person appointed by the court to make your health and financial decisions are called guardians.
Guardianships are embarrassing; they are a hassle, and they are expensive. Avoid guardianships by having a Durable POA.
What kind of durable power of attorney do I need?
Durable powers of attorney come in all shapes and sizes. Each state has its own state laws that apply to the document, the signing, the powers, and even whether or not it needs notarized to be effective.
Let’s talk about a few durable power of attorney options:
Springing Power of Attorney vs. immediate Power of Attorney
Durable powers of attorney (DPOA) can be either springing or immediately effective.
A springing power of attorney only comes to life if you are actually physically or mentally incapacitated.
The document might say something like: “This document is only effective if I am unable to consent to my own care or appreciate the consequences of my own decisions.”
A springing DPOA lays dormant until the maker (the principal) needs it. At the point that the principal lacks mental capacity to complete his own financial transactions or consent to his own medical care, the DPOA springs to life allowing the attorney-in-fact to step in.
This means that even young, healthy people should make an estate plan including durable powers of attorney. Simply tuck the POA away for a later date when you need it!
Immediately Effective Powers of Attorney
Immediate Powers of attorney, on the other hand, have no dormant period. The principal allows the agent (the attorney-in-fact) to make legal decisions on his or her behalf as soon as the document is legally executed.
A parent might appoint a child to act as his or her attorney-in-fact so that the child can start balancing the checkbook or acquainting himself with the family finances. Even though the parent has the mental and physical capacity to complete the tasks himself, the parent can direct the child to help out.
Having an immediately effective power of attorney can avoid the hassle of proving that the parent or principal is actually incompetent or incapacitated. Immediately effective POAs remove any doubt of whether the agent is empowered to act on behalf of the principal.
Durable Powers of Attorney for Healthcare
Again, not all durable powers of attorney are the same. Durable powers of attorney for healthcare allow the agent to make the principal’s medical decisions. The medical power of attorney grants powers such as:
- The power to hire and fire medical staff
- The power to override health care providers
- The power to collect and administer the principal’ medications
- The power to receive HIPAA protected information
- And more
Powers of attorney for healthcare can be incorporated into a health care proxy, a living will, an advance directive, a healthcare representative appointment, or even combined with a durable power of attorney for property.
Durable Powers of Attorney for Property or Finances
Durable powers of attorney for property or a financial power of attorney are often kept on separate documents from healthcare POAs. Separate documents keep your personal or medical information protected.
In the event your POA needs to be recorded, keeping your health and property POAs separate can protect your personal medical information. POAs don’t generally need to be recorded, but if your agent is completing a real estate transaction, your POA might need to be recorded in the county where the transaction is taking place.
A durable power of attorney for property grants your attorney-in-fact the power to take care of your financial affairs. Some of these powers include:
- The power to complete business transactions
- The power to buy, sell, mortgage, convey, or improve real estate or other real estate transactions
- The power to pay bills, access accounts, or change beneficiary designations
- The power to deal with all financial matters on your behalf
- And more
Do I have to give away all of the powers?
Powers of attorney are freely modifiable and endlessly customizable. You can even limit the powers included. Most people grant the broadest powers possible, but others wish to grant more limited authority.
Your POA can be personally tailored to meet your needs. If you only want your agent to have specific powers, ask your attorney to exclude or include only those rights.
For example, a blended family might have concerns about granting an agent the right to make beneficiary changes to accounts and property. In that case, you might specifically exclude that power.
Others might need specific tax planning and limit the tax elections that an agent can make.
Your power of attorney is a reflection of your personal circumstances, needs, wishes, and family. Meeting with a reputable attorney in your area is the best way to make sure that your POA is suited to you.
Don’t skip the durable power of attorney.
Durable powers of attorney are documents created by a principal during capacity that grant specific powers to an agent that endure beyond the principal’s incapacity.
The only way I recommend to get one is to meet with an attorney in your area, who practices your state law, and who can listen to your specific needs, wishes, and circumstances.
The durable power of attorney is the most important tool in your estate plan and the best choice to protect your assets, your health, and your dignity.
For more information about POAs, you might also enjoy: https://www.americanbar.org/groups/real_property_trust_estate/resources/estate_planning/power_of_attorney/
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