It is important for all adults to have a Durable Power Of Attorney. Here is an introduction to this important document.
A “Power of Attorney” is a legal document in which one person gives another person the power to act for him, including the power to sign papers for him. The person who is giving the power is called the “principal.” The person who will get the power is referred to as the “Attorney-in-Fact” or “agent.” “Attorney-in-Fact” does not require the person receiving the power to be an attorney. Any adult can be your Attorney-in-Fact, including your spouse, children, or siblings. Broad powers are given to the Attorney-in-Fact in a “General Power of Attorney”. This includes powers to sign checks and contracts, buy and sell real estate, manage bank accounts, and generally do anything the principal can do. The power to do only one or more specific things for a principal, like selling a certain piece of property, is called a “Special Power of Attorney”.
A”Durable” Power of Attorney is one that continues to work even if something happens to the principal that causes him to be unable to handle his own finances. A Power of Attorney must contain these words to be “durable”: “This power of attorney shall not be affected by the disability of the principal.” A “Springing” Power of Attorney only works at the time the principal becomes incapacitated.
Most Powers of Attorney which people have are Durable General Powers of Attorney. That is, they give broad powers to do anything, the powers can be used even when the principal is healthy, and they can be used if the principal becomes incapacitated. However, this cannot be know by the title alone. Some Durable General Powers of Attorney are called “Durable Power of Attorney.” Others are called “General Power of Attorney.” Still others are called “Power of Attorney.” You have to read the actual words of the document to find out whether a Power of Attorney is “general” or “special”, “durable” or not, and “springing” or not.
A Durable Power of Attorney is an important part of every estate plan. The Attorney-in-Fact can do anything necessary to handle an incapacitated principal’s financial affairs, including access to bank accounts, stocks, mutual funds, and real estate. If a person becomes incapacitated and does not have a Durable Power of Attorney, there will be problems with any assets in his or her name. The family members will not be able to withdraw money or pay bills for the incapacitated person. A family member will have to retain a lawyer, appear in court, and petition the court to assign a “conservator” of the incapacitated person’s property. (The conservator used to be called a “guardian.”) After the court officially appoints someone to be the conservator, the appointed conservator will be able to withdraw money, pay bills, and handle other financial matters for the incapacitated person. However, the court will order the conservator to keep careful records of every penny that comes to the incapacitated person and every penny that is spent for the incapacitated person. The conservator will have to go back to court every year, or as often as the court orders. The conservator will have to provide an accounting of all financial activity since the last accounting each time he or she goes back to court. There will be more attorneys fees and costs each time the conservator goes back to court. A good Durable Power of Attorney will easily avoid the expense and hassle of a conservatorship, and allow the Attorney-in-Fact to handle the pricipal’s finances without court supervision, legal fees of an attorney, and having to provide exact accounting.
This written advice was not intended or written to be used, and it cannot be used by any taxpayer, for the purpose of avoiding penalties that may be imposed on the taxpayer. (The foregoing legend has been affixed pursuant to U.S. Treasury Regulations governing tax practice.)
This column is for general information only. The facts of your case may change the advice given. The information in this column should not be relied on without consulting an estate planning specialist.