Let's start with the basics. A proper estate plan that protects both you and your assets includes the following legal documents: (1) Last Will and Testament; (2) Durable Power of Attorney; (3) Medical Power of Attorney; and (4) Living Will. In my estate planning practice, clients frequently ask: What is a Durable Power of Attorney? Since the purpose of Durable Powers of Attorney is a frequent point of discussion, below I discuss this estate planning tool's function.
What Is a Durable Power of Attorney and Why Is It Important?
A Durable Power of Attorney (DPOA) allows you to empower someone you trust to manage your financial matters if you later become unable to do so.
An individual's financial affairs are varied and can include the routine payment of utility bills and living expenses, the management of banking and brokerage accounts, the sale and/or management of real estate, the payment of state and federal taxes and the receipt of Social Security and/or other government or pension benefits. Individuals must actively manage their financial affairs.
Why Having a Durable Power of Attorney Is Important
Many individuals are under the impression that, in the event of incapacity, a spouse or adult child can manage their financial affairs. This impression, however, is misguided.
In the absence of a Durable Power of Attorney, no one can manage the principal's financial affairs unless a court finds the principal to be incapacitated and appoints a conservator and/or guardian to oversee the principal's financial affairs. Depending on the circumstances, conservatorship and/or guardianship proceedings can be expensive and lengthy. Moreover, the court may not select the individual to serve as the principal's conservator and/or guardian that the principal would have selected.
How a Durable Power of Attorney Works
A Durable Power of Attorney is a legal document that allows an individual (the "principal") to designate another individual (the "attorney-in fact") to make financial decisions on the principal's behalf if the principal becomes unable to do so. Stated otherwise, a Durable Power of Attorney allows an attorney-in-fact to manage the principal's financial affairs, without court intervention, when the principal becomes incapacitated.
An attorney-in-fact under a Durable Power of Attorney can make any decisions for the principal, with respect to the principal's financial affairs, that the principal could make for himself or herself if he or she was not incapacitated.
This is a powerful tool. It allows you to choose who can take affirmative actions to preserve your property. Without a DPOA (or a court order), for instance, even your spouse would be unable to sell plummeting stock if he or she was not a co-owner.
Practical Considerations about Durable Powers of Attorney
A Durable Power of Attorney does not give an attorney-in-fact the authority to override the financial decisions of the principal. The principal maintains the right to make his or her own decisions with respect to financial matters as long as he or she is not incapacitated.
A Durable Power of Attorney is revocable until the principal becomes incapacitated and loses the mental capacity to make financial decisions on his or her own behalf. At that point, it becomes irrevocable.
A Durable Power of Attorney is of unlimited duration. Stated otherwise, there is no specific time period after which they become invalid. However, you may revoke a DPOA and/or choose a different attorney-in-fact so long as you do so while you are mentally able to make those decisions.
At the principal's death, the attorney-in-fact's authority under a Durable Power of Attorney terminates.
Conclusion: Is a Durable Power of Attorney Really that Important?
A Durable Power of Attorney should be part of any individual's estate plan. This estate planning tool can save significant time, trouble, and expense for people who become unable to handle their own financial affairs.
Individuals who have a family history of dementia should be particularly cognizant of this fact and should execute such documents before they begin exhibiting signs of mental deterioration.
It's never too early to begin your estate plan. Please contact me, Rachel Perdue Turner, to get started on yours today. You may call me at (866) 617-4736 or complete our firm's Contact form. We'll work together to build the best plan for protecting you and your assets.