This article will be our second in a series discussing documents that are part of a complete estate plan. Here we will address Powers of Attorney; one of the most customizable estate planning tools. A Power of Attorney allows you to name a person, called an “attorney-in-fact,” to make legal and financial decisions on your behalf.
Similar to a Health Care Directive, the Power of Attorney is part of planning for incapacity times when we cannot make decisions for ourselves. Unlike the Health Care Directive, the Power of Attorney is sometimes used for situations other than when we are physically or mentally unable to make decisions.
One simple example of how a Power of Attorney is used in a context outside of estate planning is during the purchase of a car or truck from a dealership. Most dealerships provide a power of attorney form to the buyer which authorizes the dealership to file the appropriate title paperwork with the DMV for transfer of ownership to the buyer. Legally, there is no difference from the dealership’s power of attorney to a power of attorney that is part of an estate plan; the two documents just use different language.
The most common reason to use a Power of Attorney during estate planning is to authorize a family member, friend, or professional to access your bank accounts to pay bills while you are physically or mentally unable to manage these affairs on your own. Even today, when many bills use autopay, it only takes one missed payment or disregarded notice for trouble to begin.
If you are incapacitated and no Power of Attorney is in place, the only option is for your loved ones to go to Court and seek a conservatorship. In an earlier blog post, we discussed conservatorships and the list of difficulties they impose; in short, a Power of Attorney is a much simpler, easier, and cheaper option. It is also the proactive option, and, like creating a will or revocable trust, allows you to express your wishes and intentions in advance.
Powers of Attorney come in various “flavors.” A “Durable” Power of Attorney refers to one which persists when the creator becomes incapacitated; nearly all Powers of Attorney for estate planning are Durable. A Power of Attorney may also be “Springing.” Springing means the Power of Attorney is not effective until either the creator chooses to activate it by signing a certificate, or the creator becomes incapacitated as determined by a medical professional in writing.
A Power of Attorney is a powerful legal document, and it should not be created or signed lightly. This document frequently gives the attorney-in-fact access to your bank accounts, personal information, and allows them to make decisions on your behalf. A qualified estate planning attorney can guide you through the process to help you choose the right person and grant only the powers you intend. Please contact us for more information on planning.