For most people, the Durable Power of Attorney is the most important estate planning instrument available, even more useful than a will. A Power of Attorney allows a person you appoint, your “attorney-in-fact” or “agent” to act in place of you, the “principal,” for financial purposes when and if you ever become incapacitated.
In that case, the person you choose will be able to step in and take care of your financial affairs. Without a Durable Power of Attorney, no one can represent you, unless a court appoints a conservator or guardian. The court process takes time, costs money, and the judge may not choose the person you would prefer. In addition, under a guardianship or conservatorship, your representative may have to seek court permission to take planning steps that he or she could implement immediately under a simple durable Power of Attorney.
Function
A Power of Attorney may be limited or general. A limited Power of Attorney may give someone the right to sign a deed to the property on a day when you are out of town. It also may allow someone to sign checks for you. A general power is comprehensive and gives your attorney-in-fact all the powers and rights that you have, regarding your own person.
A Power of Attorney also may be either current or “springing.” Most Powers of Attorney take effect immediately upon their execution, even if the understanding is that they will not be used until and unless the grantor becomes incapacitated. However, the document also can be written so that it does not become effective until such incapacity occurs. In such cases, it is very important that the standard for determining incapacity and triggering the Power of Attorney be clearly laid out in the document itself.
Surfacing issues
However, attorneys report that their clients are experiencing increasing difficulty in getting banks or other financial institutions to recognize the authority of an agent under a Durable Power of Attorney. A certain amount of caution on the part of financial institutions is understandable: When someone steps forward claiming to represent the account holder, the financial institution wants to verify that the attorney-in-fact indeed has the authority to act for the principal.
Still, some institutions go overboard. For example, some require that the attorney-in-fact compensate them for any loss. Many banks or other financial institutions have their own standard Power of Attorney forms. To avoid problems, you may want to execute such forms offered by the institutions with which you have accounts. In addition, many attorneys counsel their clients to create living trusts in part to avoid this sort of problem with Powers of Attorney.
Consider the document
While you should seriously consider executing a Durable Power of Attorney, if you do not have someone you trust to appoint, it may be more appropriate to have the probate court looking over the shoulder of the person who is handling your affairs through a guardianship or conservatorship. In that case, you may execute a limited durable Power of Attorney by simply nominating the person you want to serve as your conservator or guardian. Most states require the court to respect your nomination “except for good cause or disqualification.”
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