Generally, a Power of Attorney is a legal document that gives a designated individual ("Attorney in Fact" or "Agent") the power to make financial decisions on behalf of the individual executing the document ("Principal"). The key components in a Power of Attorney are the scope and duration of the document. A Power of Attorney can be extremely limited in scope, such as allowing the Agent to complete only specific financial transactions, or very broad in scope, such as granting the authority to enter into any financial transaction the Principal themselves can legally complete. The duration refers to the timeframe in which the Agent can complete allowable financial transactions, including when such powers begin and terminate. For several reasons, a Durable Power of Attorney often provides the best planning tool for a client who has a trusted individual to appoint.
A traditional Power of Attorney typically grants authority that starts when the document is executed and ends on a specified date or when an event occurs. Often, only a specific action is allowed and if the Principal becomes incapacitated or incompetent, the powers end. For instance, a person might give their spouse authority to sign the HUD-1 settlement statement in connection with the sale of their marital home, as Agent, but ending the day after the property sale.
A Springing Power of Attorney is designed to grant authority after the occurence of some event or time. Most commonly, the "springing event" is the Principal becoming incapacitated or incompetent. For instance, a man might grant his son a Power of Attorney, but only after the father is determined to be incapacitated or incompetent, and continuing until the death of the father. In this example the son cannot act as Agent until the specified event has occured.
A Durable Power of Attorney has the broadest duration of all. This type of document grants authority to the Agent immediately and continues in effect until the document is revoked or the death of the Principal, regardless of whether the Principal becomes incapacitated or incompetent. For example, a man might grant his daughter a Durable Power of Attorney so the daughter has authority to conduct financial transactions both before and after the man is incapacitated or incompetent.
Benefits of a Durable Power of Attorney:
Depending on a client's needs, the Durable Power of Attorney has two major benefits:
First is the document's duration. Because the powers continue in effect until revokation or death of the Principal, the Agent has authority to make financial transactions even if the Principal becomes incapacitated or incompetent. Often, the most critical time for an Agent to act on a Principal's behalf is after a determination of incapacity or incompetence. For instance, an Agent can write checks to a nursing home where a now incompetent Principal is a resident. Without the Durable Power of Attorney, a Guardianship Proceeding is required where an individual petitions the court to grant authority to control finances and healthcare decisions. Costing money and time, a Durable Power of Attorney can avoid the necessity of a court proceeding.
Second is the clarity of a Durable Power of Attorney. Although a Springing Power of Attorney can be designed to grant authority after the Principal becomes incapacitated or incompetent, proving the "springing event" itself can become very complicated. Even when a document appears to clearly define when a Principal is incapacitated or incompetent, disagreement and controversy can easliy arise. However, a Durable Power of Attorney does not rely on a "springing event" to become effective, thereby avoiding this pitfall of a Springing Power of Attorney.
***It is critical only a trusted individual be named as Agent in a Power of Attorney, especially one durable in nature, because of the often broad authority and responsibility granted***
To discuss how a Power of Attorney can be utilized in your estate planning, please contact Kerr Law, PLLC.