For most people, the durable power of attorney is the most important estate planning document available.
What Is a Power of Attorney?
When you have a power of attorney (POA) in place, you have appointed someone as your attorney-in-fact or agent. This appointee is someone you trust who would have the authority to step in and act in your place when necessary.
For example, you may grant POA to someone to handle your financial decisions for you when you are abroad. Or perhaps you are a business owner who would like a POA so that an agent can stand in your place to buy and sell assets.
What Is a Durable Power of Attorney?
Were you to endure a serious injury, illness, or disability, you may become unable to manage your own affairs. In these cases, having a durable power of attorney (DPOA) can be ideal. A durable POA remains in effect even if you ever become incapable of making decisions or communicating your wishes.
You can name an agent under your DPOA to apply to health care decisions or actions related to your financial affairs. If your preference is to name the same person to serve in both of these roles, that is an option you can pursue. Note that your attorney will still likely prepare two separate documents: a DPOA for health care and a DPOA for finances. (States may vary in the terms that they use for these kinds of documents.)
What If I Don't Have a Durable Power of Attorney?
Without a durable power of attorney, no one can represent you unless a court appoints a conservator or guardian. That court process takes time, costs money, and the judge may not choose the person you would prefer. (Under a guardianship, your agent also may have to seek court permission to take financial or long-term care planning steps. Under a simple durable power of attorney, they could have implemented a plan immediately.)
Other Types of Power of Attorney
A power of attorney may also be limited or general. A limited POA can give someone the right to sign a deed on your behalf when you are out of town. Similarly, it may allow someone to sign checks for you. A general POA is comprehensive and gives your attorney-in-fact all the powers and rights that you have yourself.
A power of attorney may also be either current or springing. Most powers of attorney are valid immediately upon their execution. However, the understanding is that the POA will not actually take effect until and unless the grantor loses capacity.
However, the document can also specify that it doesn't become effective until a loss of capacity occurs. (It must clearly define the standard for determining this loss of capacity as well as for triggering the POA.)
Do Banks Accept Durable Power of Attorney?
Getting banks or other financial institutions to recognize an agent's authority under a DPOA can sometimes be challenging.
A certain amount of caution on the part of financial institutions is logical. Someone may step forward and claim to represent you, the account holder. However, the financial institution wants to verify that this person indeed has the authority to act on your behalf.
Still, some institutions go overboard, for example, requiring that the attorney-in-fact indemnify them against any loss. Many banks or other financial institutions have their own standard power of attorney forms.
To avoid problems, you may want to execute forms offered by the institutions with which you have accounts. Many attorneys may counsel their clients to create living trusts to help avoid this problem with powers of attorney.
Other Considerations
While you should seriously consider executing a durable POA, you may not have someone you trust enough to appoint. Choosing an agent is undoubtedly a significant decision.
You want to select someone who you believe will act in your best interest and whom you consider responsible and organized. (Keep in mind that you do not have to choose a family member as your agent. You may opt to appoint a professional, such as an attorney or accountant.)
You may wish to have the probate court monitor the person handling your affairs through, for example, a guardianship. In that case, you may execute a limited DPOA by nominating the person you want to serve as your guardian. Most states require the court to respect your nomination "except for good cause or disqualification."
If you have never served before as an agent under a POA, there are resources available to help you understand your role. The federal Consumer Financial Protection Bureau offers a free PDF with more information for agents. Find the resource, "Managing Someone Else's Money: Help for Agents Under a Power of Attorney," online.
Work With an Estate Planning Attorney
The requirements for powers of attorney tend to vary from state to state. Be sure to work with an estate planner in your area who is familiar with your local regulations. They can also secure witnesses and notaries as needed for your power of attorney document. For further guidance, search for a qualified estate planning attorney near you.
Additional Resources
To learn more about the different types of POA and some other essential estate planning documents, review the following:
- 8 Questions and Answers About Being an Agent Under a Power of Attorney
- Decisions to Make for Your POA
- Limited Power of Attorney in Estate Planning
- Now That My Daughter Is Married, Should I Change Her Name on My POA Form?
- Does Bankruptcy Disqualify Someone From Serving as an Agent Under a Power of Attorney?
- Health Care Proxy: Who Makes Medical Decisions If You Can't?