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Why You Need a Durable Power of Attorney, Now!
By: John Pollock, Wed May 3rd, 2006
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Planning for unfortunate events such as serious illness or
injury is rarely on anyone's list of favorite pastimes.
Sometimes, though, enduring the small discomfort that may
accompany preparing for the unexpected will avoid untold anguish
on the part of your family and friends. This is certainly the
case with the Durable Power of Attorney, an often simple
document that becomes so very important if sickness or injury
renders you unable to take care of your own affairs.
Power of Attorney Defined
A Power of Attorney is a document in which you (as the
"Principal") allow someone else (the "Agent" or
"Attorney-in-fact") to act legally on your behalf. The Power of
Attorney may be limited to very specific actions that the Agent
is authorized to take on your behalf. On the other hand it may
give the Agent very broad powers. In either event, the Agent you
appoint in the Power of Attorney should be someone that you
trust without reservation. That could be a family member, an
advisor, a trustworthy friend or a bank or similar
institution.
The "Durable" Power of Attorney
The significance of having a "Durable" Power of Attorney is best
understood if you know what can happen with the plain old garden
variety of Power of Attorney.
If you sign a Power of Attorney that is not "durable," the
document remains effective only while you are alive and
competent to handle your own affairs. If you become incompetent
or die, the Power of Attorney is automatically revoked by law
and your Agent is no longer able to act on your behalf. This
prevents a Power of Attorney from becoming irrevocable
inadvertently, and, until recent times, it was the only way a
Power of Attorney could be prepared.
The non-durable Power of Attorney has limited usefulness for
family and estate planning purposes, though, because the Power
of Attorney is often most needed when you have become
incapacitated! That is when you really need someone else that is
able to make legal decisions or take other actions on your
behalf.
All fifty states now permit the use of a "durable" Power of
Attorney that is not revoked simply because the Principal
becomes incapacitated or mentally incompetent. This makes the
Durable Power of Attorney a far more reliable document,
particularly for family and estate planning purposes, since you
may now authorize your Agent to act on your behalf even after
illness, injury or other cause has rendered you unable to manage
your own affairs. Even with a Durable Power of Attorney,
however, the Principal's death causes an immediate revocation of
the document and termination of the powers that are given to the
Agent
A Matter of Convenience
The Durable Power of Attorney is often used as a matter of
convenience.
Suppose, for example, you have your home listed for sale. You
have also planned a long awaited trip to visit Aunt Trixie in
Deadwood, South Dakota, and you are concerned that an interested
buyer may come along while you are on the road. A Durable Power
of Attorney would be handy here to appoint someone you trust to
act in your absence to negotiate the sale and sign any documents
that are needed to make the deal binding.
The Durable Power of Attorney could be prepared so that it is
effective only until the date you plan to return from your trip,
and it might describe specific terms that your Agent must
include in the sale, such as the minimum sale price that is
acceptable to you.
A Matter of Protecting Loved Ones
What happens if, from illness, injury or another cause, you
become physically or mentally incapacitated to the point that
you are no longer able to handle your own legal affairs?
Let's suppose again that while you are incapacitated it becomes
necessary to mortgage your home to pay your medical bills. Who
will sign the mortgage? Even if your home is jointly owned with
your spouse, he cannot obtain a mortgage without your signature.
In those circumstances it would be necessary to request the
local probate court to appoint a guardian for you that has the
power to handle your legal affairs. In many states, this type of
guardian is referred to as a "conservator". Included in the
conservator's powers might be the power to borrow money and sign
a mortgage on your behalf making it possible to obtain the funds
needed to pay the medical bills.
However, you may have heard that it is advantageous to avoid
probate whenever possible, particularly if there is a good
alternative available. The delay and expense associated with
probate proceedings and the fact that they are conducted in the
probate court, a public forum, make that good advice in most
circumstances. And there is a better alternative than probate,
but it requires you to act before the incapacity arises - you
need to sign a Durable Power of Attorney.
When used in this estate planning context, the Durable Power of
Attorney is generally worded very broadly to give your Agent the
power to step into your legal shoes in almost any circumstance.
In effect, you tell your Agent "You can do anything I can do."
Now, if you have prepared the Durable Power of Attorney and then
become incapacitated, no one has to go through a probate
proceeding to appoint a guardian or conservator to act for you -
you have already given your Agent the power to do so. As you can
see, the Durable Power of Attorney can save precious time and
expense in critical situations and avoid having your personal
affairs become the subject of a public proceeding.
Appointing a Successor Agent
It is often a good idea to appoint one or more successor Agents.
The Agent you appoint in your Durable Power of Attorney may die
or for some other reason become unable or unwilling to act as
your Agent. In that case, you may be left without someone to act
for you when you most need that assistance.
Appointing successors to your first choice of Agent helps insure
that someone is always available to handle your affairs. Of
course, each successor that you appoint should be someone that
has your complete trust.
Revoking a Power of Attorney
As long as you are competent, you have the power to revoke your
Durable Power of Attorney. To do so, send written notice to your
Agent notifying him or her that the document has been revoked.
Once the Agent has notice of your revocation, the Agent may take
no further action under the Durable Power of Attorney. However,
your revocation will not undo any permissible actions that the
Agent has taken prior to being notified that the Power of
Attorney has been terminated.
You must also notify third parties with whom your Agent has been
dealing that the Durable Power of Attorney has been revoked. For
example, if the Agent has been dealing with a stockbroker, you
must notify the stockbroker as soon as possible. Do this in
writing, as well, and do it immediately. Third parties who do
not receive notice of the revocation are entitled to, and
probably will, continue to rely on the Durable Power of
Attorney.
Making the Durable Power of Attorney Effective upon
Incapacity.
It is possible to have a Durable Power of Attorney that only
becomes effective if and when you become incapacitated. This
document is referred as a "springing" Durable Power of Attorney
because it "springs to life" on the occurrence of a future event
- your incapacity. The document should include a detailed
definition of "disability" to make clear the circumstances in
which your Agent may act on your behalf.
Knowing that your Agent is unable to exercise his or her powers
until you are actually unable to do so yourself may make using
the Durable Power of Attorney more comfortable for you.
Unfortunately, even with a good definition of incapacity in the
springing Durable Power of Attorney, your Agent may find that
third parties are simply not willing to make the judgment that
you are indeed disabled. If they are wrong, they may be held
liable to you for any damages that you sustain as a result of
the error in judgment. You may therefore find the springing
document cannot be relied upon in all circumstances.
Don't Procrastinate!
Estate planning is easy to put off. But don't!
Advance planning, such as executing a Durable Power of Attorney,
may make a horrible circumstance for you and your family just a
bit more bearable.
About the author:
John Pollock has practised as an attorney in the Detroit,
Michigan area for the past 25 years. His practice focuses on
estate planning, tax and small business matters. John is also
the webmaster of http://www.forms-free-4-all.com a site offering
free legal forms such as durable powers of attorney, wills,
bills of sale, business plans and many others. His website also
provides easy to understand explanations of the forms and
relevant law.
