Takeaways
- A durable power of attorney can prove critical if you ever lose the ability to manage your own affairs.
- You must have legal capacity to execute a power of attorney, so it’s important to do it before it’s too late.
- If you do not have this legal document in place, a court might have to appoint a conservator or guardian who would be granted the power to act on your behalf.
- Consult with an estate planning attorney to prepare and execute legal documents such as a durable power of attorney.
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. This crucial document allows a person you appoint – your “attorney-in-fact” or “agent” – to act in place of you – the “principal” – for specific purposes when and if you ever become incapacitated due to dementia or some other reason.
The agent under the power of attorney can then quickly step in and take care of your affairs. This may include health care-related or financial decisions, depending on the power of attorney document you create.
However, to execute a power of attorney (POA) 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 If I Don’t Have a POA in Place?
Life can take some unexpected turns. If you ever experience a serious illness or sudden injury, you may lose the ability to handle your own affairs. You want someone you trust to have the legal authority to act on your behalf and in your best interests if necessary.
Without a durable power of attorney, no one would be able to represent you unless a court appoints a conservator or guardian. That court process takes time and costs money, and the judge may not choose the person you would prefer. In addition, under a guardianship or conservatorship, the representative may have to seek court permission to take planning steps that they could have implemented immediately under a simple durable power of attorney.
This is why it’s so important that you have a durable power of attorney in place before you lose the capacity to execute this type of document.
Who Determines Your Legal Capacity?
The standard of capacity with respect to durable powers of attorney varies from jurisdiction to jurisdiction. Some courts and practitioners argue that this threshold can be quite low: The client need only know that they trust the agent to manage their affairs. Others argue that since the agent generally has the right to enter into contracts on behalf of the principal, the principal should have the capacity to enter into contracts as well, and the threshold for entering into contracts is fairly high.
A third party, often an estate planning attorney, assesses this unless there is doubt about capacity. Formal legal requirements also must be followed.
A Limited Durable POA
If you do not have someone you trust to appoint as your agent, it may be more appropriate to have the probate court looking over the shoulder of the person who is handling your affairs through a guardianship or conservatorship. In that case, you may execute a limited durable power of attorney that simply nominates the person you want to serve as your conservator or guardian. (Note that different states may use the terms guardian or conservator to mean different things.)
A limited durable power of attorney grants authority to an agent to act on your behalf for very specific purposes only. This type of POA can be used to nominate a person you want to serve as your conservator or guardian should that ever be needed. It is different from a general durable power of attorney, which gives much broader powers to the appointed agent.
Most states require the court to respect your nomination “except for good cause or disqualification.”
Work With an Estate Planning Attorney
Because you need a third party to assess your capacity and you also need to follow formal legal requirements, preparing and executing legal documents on your own without representation by an attorney can be risky. To execute a durable power of attorney before it’s too late, contact an experienced estate planning attorney in your area today.
Beyond being able to create a durable power of attorney for you, an estate planning attorney can provide comprehensive support in many other ways, including the following:
- They can help you establish a will or revocable living trust that will determine how to pass your money and property on to your loved ones, minimizing taxes as well as avoiding the complexities of the court process known as probate.
- An estate planner can guide you in selecting the most appropriate beneficiary designations for your retirement accounts and life insurance, ensuring these choices align with your overall goals and estate plan.
- For complex situations, they have the knowledge to establish strategies for preserving your wealth, charitable giving, or planning for a family member with special needs.
- They can also offer ongoing advice as your life circumstances change, ensuring your estate plan remains current.
Engaging an estate planning attorney can help give you peace of mind, navigating intricate legalities and ensuring that your wishes are upheld.