There may come a point in life when you – or a loved one –need a trusted family member, friend, or professional to assist with your property and financial affairs and decision-making. Since that point may come when you are already incapable of managing your property or financial affairs, we advise our estate planning clients to execute a Power of Attorney. This inexpensive mechanism appoints a substitute decision-maker to act in your stead. This post will assist in explaining what a Power of Attorney does and how appointing an attorney-in-fact can benefit your life.
WHAT IS A POWER OF ATTORNEY?
A Power of Attorney is a legal document that authorizes an individual to act on another’s behalf in their business, financial, and legal affairs. The individual who executes the Power of Attorney granting authority to a representative is typically referred to as the “principal.” In contrast, the representative is typically referred to as the “attorney-in-fact.” As distinguished from a Health Care Proxy, a Power of Attorney does not confer authority on a representative to make decisions concerning the principal’s healthcare.
WHAT ARE THE TYPES OF POWERS OF ATTORNEY?
There are generally two (2) types of Powers of Attorney: durable and springing. With a Durable Power of Attorney, the powers conferred on the attorney-in-fact are “durable” in that not only do they become effective immediately, but they stay in effect once you become incapacitated and unable to manage your affairs. With a Springing Power of Attorney, the attorney-in-fact’s powers take effect only upon the principal’s incapacity or some other definite event or circumstance. Generally, a Springing Power of Attorney may require some third-party verification, such as determined by a physician for the powers to take effect.
HOW CAN A POWER OF ATTORNEY BENEFIT ME?
A Power of Attorney can give you peace of mind. It can be a useful, inexpensive tool to plan for future incapacity. Not all Powers of Attorney need to be the same. You may grant an attorney-in-fact authority in the following general areas: financial, business, real estate, and legal. Indeed, a Power of Attorney can be tailored to your needs and the complexities of your life. Under a general Power of Attorney, the principal grants the attorney-in-fact the right to conduct any financial, business, real estate, and legal transactions on behalf of the principal. Under a limited Power of Attorney, the attorney-in-fact is authorized to perform certain financial and business acts and make some decisions but not others. A special Power of Attorney is the narrowest in scope, limiting the attorney-in-fact’s authority to only that specified in the instrument. The scope of authority you wish to confer on your attorney-in-fact is up to you, and a Power of Attorney can be rescinded at any time the principal remains competent.
Because an attorney-in-fact steps into your shoes and is authorized to make financial decisions for you, including access to your bank accounts and other assets, the person you nominate to serve in this position should be a trusted confidant. In a typical situation, our clients will nominate their spouse or close friend to serve as their attorney-in-fact, followed by their children or another family member. However, you are not limited to whom you may nominate to serve in this role. It is not uncommon for clients with blended families or complex financial affairs to nominate an attorney or financial advisor to serve. You should consider the person you nominate to serve as your attorney-in-fact.
In the absence of a Power of Attorney, should you become incapacitated or otherwise incapable of managing your property and financial affairs, someone – a loved one, friend, or healthcare professional – may petition for the appointment of a conservator. This court-appointed fiduciary oversees and manages the property and finances of the individual (you) sought to be protected. Since the fiduciary is court-appointed, it necessitates associated costs and filings. While the powers and authority of an attorney-in-fact and conservator are comparable, a conservator bears ultimate responsibility for a protected person’s assets and trumps the individual appointed under a Power of Attorney with respect to financial decision-making authority.