FAQ-Powers of Attorney

FREQUENTLY ASKED QUESTIONS ABOUT POWERS OF ATTORNEY You hope that you will always be able to handle your own affairs. If, however, you became incapacitated, how would your assets and finances be managed? What about your home? Your IRA? Your bank account? Depositing your checks? Filing and paying your taxes? A durable power of attorney (DPOA) may be the answer to these questions. 1. What is a Durable Power of Attorney? A DPOA is a legal document. In it, you name another person (usually a trusted family member or friend) to handle financial affairs on your behalf. At the time of signing, the Principal must have 'capacity' (basically, must understand what the document does). In order for an Agent to be qualified, the Agent must also have capacity. The individual who signs the DPOA is called the 'Principal,' and the individual authorized to act on the Principal's behalf is called the 'attorney-in-fact' or 'Agent.' Giving the Agent the power to act on the Principal's behalf does not take away the Principal's power to act. The Principal retains power over his or her assets as long as the Principal continues to have the mental capacity to handle his or her own affairs. To use a power of attorney in incapacity planning, it must be made 'durable.' Being durable means that the financial power of attorney includes language stating the Principal's intent that the Agent will have authority under the power of attorney even if the principal becomes incapacitated. If a power of attorney is not durable, the Agent's power to act for the Principal would end just at the time when the Principal is no longer able to manage his or her own affairs. 2. When does a DPOA take effect? A DPOA can be either 'immediate' or 'springing.' An immediate DPOA becomes effective at the time it is signed, while a springing DPOA becomes effective on the happening of a specified event in the future (such as the Principal becoming incapacitated). An immediate DPOA allows the Agent to act on the Principal's behalf without having to prove that the specified event has occurred. Making a DPOA effective immediately, of course, also gives the Agent immediate power over the Principal's assets. 3. How long does a DPOA continue? The DPOA is a tool for dealing with incapacity during the Principal's lifetime. It terminates automatically at the Principal's death. The DPOA will last throughout the Principal's lifetime, unless the DPOA limits its duration or the Principal terminates the DPOA. As long as the Principal has legal capacity, the Principal can revoke the DPOA by a written document or by any other means stated in the DPOA. In practice, however, a DPOA may be difficult to revoke. Written notice of the revocation should be given to all third parties who have received copies of the DPOA and the original and all copies should be retrieved from the Agent. The revocation should also be recorded with the County Recorder where the original document was recorded and where the Principal owns real property. 4. Will everyone accept the DPOA? Although a DPOA can remain in effect until the Principal's death, if the document was not recently executed, some financial institutions or other third parties may be hesitant or unwilling to accept it. For example, a third party may be concerned about whether the DPOA may have been revoked or whether the Principal may have died. Although there are legal steps an Agent can take to require the third party to accept the DPOA, this can take time and added expense. For this reason, we suggest that the DPOA be updated at least every three years. For bank accounts, you might want to execute your bank's financial power of attorney form, in addition to your broader DPOA. The bank forms will apply to specified accounts within the same bank. Practically speaking, many banks are easier for Agents to deal with when the Principal has used the bank's form of financial power of attorney. 5. How do I choose an Agent? A DPOA can give the Agent extensive power over the Principal's assets. The Agent must be selected with care. Factors to consider include: ★ Whether the person can be trusted to handle the Principal's financial matters in the Principal's best interest; and ★ Whether the person has good financial skills; and ★ Whether the person will be available when needed. We recommend that the Principal name a second and/or third person to serve as successor Agents, to plan for the possibility that the Principal's prior choices are unable or unwilling to act. The principal can name 'Co-Agents' - two or more Agents authorized to act at the same time. In that case, unless the DPOA states that Co-Agents may act independently, the Co-Agents must act unanimously. We normally recommend against naming Co-Agents, because of practical and logistical problems, and potential disagreements among Co-Agents leading to inaction. Conclusion A DPOA is a valuable tool for planning ahead for the possibility of incapacity. Once a person has become incapacitated, it is too late for them to create a DPOA. Great care should be taken in the selection of each Agent, because in the wrong hands a DPOA is a 'license to steal.' A well-prepared DPOA can pave the way for careful management, and avoid the need for costly court intervention. Prepared By: Marta J. Williger Attorney at Law 323-C South Main Street P.O. Box 368 Munroe Falls, Ohio 44262 (330) 633-7373