A durable power of attorney for financial decisions is a key part of a complete estate plan. In this document a person is named to act on behalf of the person signing the document for certain financial and legal decisions which may need to be made in the event of an incapacity. The term “durable” in a “Durable Powers of Attorney” simply means that the authority of the person named continues upon even through incapacity, but automatically ends upon death. The types of decisions include such things as:
- opening and closing bank accounts;
- depositing checks or writing checks on bank accounts to pay bills;
- filing income tax returns;
- mortgaging, re-financing, or selling real estate;
- making retirement plan or IRA distribution elections;
- filing a lawsuit (or continuing to pursue or defend a lawsuit);
- and generally dealing with any property right or interest held in individual name or as a joint tenant.
Generally, married couples name each other as the primary person to act on each other’s behalf regarding financial, legal and business affairs. We suggest naming at least one alternate for each spouse, so that there is always a person with authority to protect interests in the event both spouses become incapacitated at the same time, or one spouse becomes incapacitated sometime after having begun acting on behalf of the other.
There are two ways that a person named under a power of attorney can begin to act.
1) Effective Upon Signing and Delivery. One option is to have the authority of the designated person be immediately effective. In that case, the named person has authority to take actions with respect to finances and investments but they are always required by law to act in the best interests of the person the appoints them. The person named will not be able to act under this document until it is actually given to them. This delivery requirement provides some level of protection if it is not intended for the person to have fully authority to act until he or she is actually needed.
2) Effective Only Upon Triggering Event. The other option is to have the authority of the designated person only become effective upon an event of disability or incapacity. Typically, a letter from a doctor will be required to verify the triggering event, and our forms require the doctor’s letter to be attached to the power of attorney form in order for the document to be honored. The advantage of this approach is that there is a level of protection that the document will only be used when absolutely necessary, meaning in the event the person establishing the power of attorney document is personally not able to act. The possible disadvantage of requiring a triggering event is the ongoing need to keep the doctor’s letter current, as some institutions will require an up-to-date letter before relying on the document.
We typically prepare powers of attorney for married couples to be immediately effective. The reason is that couples generally want to deal with their marital property without having to provide third parties any further explanation, like medical letters. The persons named as second in line in the documents can either be designated as immediately in power (if the primary person is unable to act) or subject to the triggering event standard, in which case a doctor’s letter would be required before they could act. This is one of the options covered in an estate planing consultation meeting.
Importantly, if a Revocable Trust is also part of an estate plan, the authority of the agent under a power of attorney generally does not overlap or conflict with the powers given to the Trustee of a Trust. In fact, the power of attorney usually fills some important gaps in authority, because the Trustee’s power only extends to property titled in the name of the Trust. For example, filing a tax return or dealing with a lawsuit are personal decisions, and are not tied to ownership of specific items of property. So a Trustee of a Trust may not necessarily have the authority to take steps to protect or defend all of a client’s interests.
Finally, a durable power of attorney for financial affairs can be revoked at any time. If the document is intended to no longer be in effect, the named persons should be contacted and be informed that their authority to act is revoked. In addition, if the attorney-in-fact had been dealing with some third party (for example a stockbroker), that third party should also be contacted and informed of the revocation.