Durable Power of Attorney for Finances

A durable power of attorney for finances is a very important document that you should have as part of your estate plan. It authorizes your agent to act for you with respect to money and property. So, if you were to find yourself in the hospital for a few weeks, your agent could pay your bills, manage your investments, and make other financial decisions on your behalf. Without a durable power of attorney, your family or friends would run headlong into a brick wall when they attempted to act on your behalf.

But let's take a look at why that's so. If you look at it from the point of view of a bank or insurance company, it makes sense perfect sense. For example, let's assume that your brother needs to use your money to pay your medical bills. But he can't sign your checks. And if he asks your bank to give him $1,500 from your checking account to cover the expenses, the bank won't do it without something proving that your brother is authorized to act on your behalf. After all, they have no way of knowing that he isn't trying to steal your money to take his girlfriend on a long cruise.

A durable power of attorney for finances gives institutions the assurance that they need to work with someone who's acting in your stead. If you don't take the time to create one while you're competent to do so, the only alternative your family will have is to go to court and ask that someone be named your conservator – which is expensive, restrictive, and also public.

Some couples have joint checking accounts. If so, your spouse or your partner could still write checks for you if it were needed. But that's not a substitute for having a durable power of attorney in place as well. Couples who travel together can both be injured at the same time, so they need to have backup agents in place to take care of money and property in such an eventuality. Couples who own property separately need a durable power of attorney for finances to allow each to act for the other regarding their respective holdings. And married couples often don't have unlimited rights to deal with property that's jointly-owned. Without a power of attorney, one spouse can't sell property or cars without the consent of the other.

Furthermore, when someone is seriously ill, there's typically much more to see to than simply writing checks. Sometimes stock or other property must be sold, houses or apartments must be cleaned and/or vacated, and nursing homes may need to be procured and paid for. All of these tasks, and many more, require the authority granted by a durable power of attorney for finances in order to be carried out.

When you execute a power of attorney, you have control over what powers your agent is given. These can be quite broad or very narrow in scope – it's up to you. When creating a durable power of attorney as part of a comprehensive estate plan, the broader the powers that you grant, the better. You want your agent to be able to take whatever action may be necessary if you're unable to act for yourself.

Using most durable power of attorney forms, you can give your agent authority over some or all of the following things:

  • using your assets to pay your everyday expenses
  • handling transactions with banks and other financial institutions
  • buying, selling, maintaining, and paying debts and taxes on property
  • filing and paying your taxes
  • managing your retirement accounts
  • collecting government benefits owed to you
  • investing your money in financial markets
  • buying and selling insurance policies for you
  • operating your small business
  • making gifts on your behalf
  • transferring your property to a living trust that you've already set up
  • filing legal actions on your behalf
  • paying for your personal care and supporting your family

In using the authority you've granted, your agent must act only in your best interest and never for his or her personal benefit. The agent must also keep careful records and never mix your assets with anyone else's. He or she must avoid conflicts of interest, such as purchasing your property for personal use, unless your durable power of attorney specifically grants the right to do so.

The power of attorney that you sign will state when and how your agent can be liable for breaking the rules. Generally, an agent who displays willful malfeasance can be held liable to repay any economic harm that results. But he or she is not liable for ordinary acts that simply don't work out well – say, for example, an investment in a credible company that lost money.

You have a choice about when your agent's authority takes effect. You can give your agent power to act as soon as you sign the documents, or you might specify that your agent's authority will begin only if you're incapacitated.

Most powers of attorney created by young, healthy individuals are written so that they take effect only if someday they're no longer able to manage their own affairs. So, as long as they remain healthy and capable, they retain complete control over their property. This type of POA is often called a "springing" power of attorney, because it springs into effect only if the granting individual becomes incapacitated.

Proving incapacity usually requires that at least one doctor sign a statement stating that you're unable to manage your own affairs. This isn't a problem for someone facing major surgery, but it can be a dilemma for families when a loved one is facing a long-term degenerative disease, such as Alzheimer's disease or dementia. In such situations, family members can disagree about whether or not the person is incapable of managing their daily affairs, and it's difficult to use a springing power of attorney to help.

It can also be problematic because federal law makes doctors liable for giving out confidential health care information without the patient's consent. This can create a Catch-22 circumstance, wherein the agent needs medical information (the doctor's statement of incapacity) to take charge under a durable power of attorney, but the doctor can't give that information without the patient's consent, and the patient either can't or won't give it. For this reason, most estate planners recommend that their clients sign a consent form for the release of medical information along with the durable power of attorney for finances.

blog comments powered by Disqus