The Basics: Financial Power of Attorney
This is the first in a three-part series of articles on Powers of Attorney. This first article examines the Financial Power of Attorney. The second article will address the Healthcare Powers of Attorney. The third article in the series will focus on a “HIPAA” Power of Attorney. These three documents are the keystone in even the most basic estate plan.
Powers of Attorney add tremendous flexibility to an estate plan.
First, what’s a Power of Attorney? It’s a document by which you appoint someone as your “Agent” to act on your behalf. If that Agent is unwilling or unable to act, the document can appoint one or more successor Agents. In other words, you give someone else (the Agent) powers you inherently already have yourself. With a Financial Power of Attorney, otherwise known as a General Durable Power of Attorney, you appoint your Agent to make financial decisions for you. The Power could be drafted to be “immediate.” In other words, the Agent would have the power to make decisions regarding your financial assets right away and without regard to your ability to make those decisions for yourself. In most states, you could make the Power “springing,” in other words it would only become effective upon your not being able to act for yourself because of incapacity. A Power of Attorney is “durable” if it continues notwithstanding you having incapacity. A Power of Attorney which is not durable would not allow your Agent to act during your incapacity.
The most useful and most common Financial Power of Attorney is one that is “general.” In other words, it is effective as to all your property. You could have a Power of Attorney that is “specific,” in other words it only applies to a particular property or for a particular purpose.
Let’s look at an example:
Mary is going to Europe for a semester abroad. She has a car which she wants her father, Harry, to sell for her. She signs a Financial Power of Attorney in which she appoints Harry as her Agent. The Power would need to be immediately effective as Mary is not expecting to have a period of incapacity. She could have the Power prepared so that it is specific to the sale of her car. Or, Mary could have the Power prepared as a general power.
Let’s look at another example:
Harry has a Power of Attorney prepared and wants his wife, Betty, to act for him in the event he becomes incapacitated. He has a Power of Attorney prepared to appoint his wife, Betty, as his Agent. His daughter, Mary, is his successor Agent. If Harry’s Power of Attorney is springing, Mary could act only upon Harry’s incapacity. Harry’s incapacity is defined in the Power, such as a certification of incapacity by two physicians. Harry has a Power of Attorney which is a “hybrid” in which it is immediately effective when his spouse is acting as his Agent, yet it is “springing” when anyone else (such as Mary) is acting as his Agent.
With these Powers of Attorney in place, Mary can travel to Europe and rest easy that Harry will be able to sell her car for her while she’s hiking in the Alps. Meanwhile, Harry can rest assured that his Power of Attorney will enable Betty and Mary to act for him if needed.
Powers of Attorney add great flexibility to an estate plan. However, sometimes an Agent under a Financial Power of Attorney could encounter resistance to its use from financial institutions which have been defrauded through the use of Powers of Attorney. For this reason, trusts may offer better incapacity protection than Financial Powers of Attorney, though Financial Powers of Attorney are a good idea even with a trust-based estate plan.
The next article in the series will focus on Healthcare Powers of Attorney and Advance Directives.
For more information about Steve Hartnett, author of this article, and to see others he has written, click here.
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