What is a Power of Attorney?

When you have a power of attorney (POA) in place, you have appointed someone as your attorney-in-fact or agent.  This appointee is someone you trust who would have the authority to step in and act in your place when necessary.

For example, you may grant POA to someone to handle your financial decisions for you when you are abroad.  Or perhaps you are a business owner who would like a POA so that an agent can stand in your place to buy and sell assets.

What is a Durable Power of Attorney?

A durable power of attorney is an extremely important estate planning tool, even more important than a will in many cases.  Were you to endure a serious injury, illness, or disability, you may become unable to manage your own affairs.  In these cases, having a durable power of attorney can be ideal.  A durable POA remains in effect even if you ever become incapable of making decisions or communicating your wishes.

But in order to execute a power of attorney and name an agent to stand in your shoes, you need to have capacity.  Regrettably, many people delay completing this vital estate planning step until it’s too late and they no longer are legally capable of doing it.  What happens then?

What if I Don’t Have a Durable Power of Attorney?

Without a durable power of attorney, no one can represent you unless a court appoints a conservator or guardian. That court process takes time, costs money, and the judge may not choose the person you would prefer. In addition, under a guardianship, the representative may have to seek court permission to take planning steps that he or she could have implemented immediately under a simple durable power of attorney.

Why is it So Important that Hou Have a Durable Power of Attorney?

You need a third party to assess capacity and because you need to be certain that the formal legal requirements are followed, it can be risky to prepare and execute legal documents on your own without representation by an attorney. In addition, you may leave out crucial authority that your agent will need.  This is especially important when it comes to Medicaid, VA, and other public benefits planning.  Without broad authority to complete extraordinary transactions on your behalf, your agent may not be able to complete the asset protection you sought when executing the durable power of attorney.

Do Banks Accept Durable Power of Attorney?

Getting banks or other financial institutions to recognize an agent’s authority under a POA can sometimes be challenging.

A certain amount of caution on the part of financial institutions is logical. Someone may step forward and claim to represent you, the account holder. However, the financial institution wants to verify that this person indeed has the authority to act on your behalf.

Still, some institutions go overboard, for example, requiring that the attorney-in-fact indemnify them against any loss. Many banks or other financial institutions have their own standard power of attorney forms.

To avoid problems, you may want to execute forms offered by the institutions with which you have accounts. Many attorneys may counsel their clients to create living trusts to help avoid this problem with powers of attorney.

Other Considerations

While you should seriously consider executing a durable POA, you may not have someone you trust enough to appoint. Choosing an agent is undoubtedly a significant decision.

You want to select someone who you believe will act in your best interest and whom you consider responsible and organized. (Keep in mind that you do not have to choose a family member as your agent. You may opt to appoint a professional, such as an attorney or accountant.)

You may wish to have the probate court monitor the person handling your affairs through, for example, a guardianship. In that case, you may execute a limited DPOA by nominating the person you want to serve as your guardian. Most states require the court to respect your nomination “except for good cause or disqualification.”

If you have never served before as an agent under a POA, there are resources available to help you understand your role. The federal Consumer Financial Protection Bureau offers a free PDF with more information for agents. Find the resource, “Managing Someone Else’s Money: Help for Agents Under a Power of Attorney,” online.

Work With an Estate Planning Attorney

The requirements for powers of attorney tend to vary from state to state. Be sure to work with an estate planner in your area who is familiar with your local regulations. They can also secure witnesses and notaries as needed for your power of attorney document.

To execute a durable power of attorney before it’s too late along with the rest of your comprehensive estate plan, contact us today.  We can assist you in preparing a plan that contains everything you and your family needs to provide peace of mind and future protection.

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