Posts Tagged ‘estates’

 

A power of attorney is the most overlooked and under-loved document . . . but, oh, so important. Even then, a person with a power of attorney may not have all the fire power needed.

Also, I wrote earlier on how a power of attorney is an important way to avoid a common banking error. You can read about these make-or-break documents in less than 3 minutes right here . . . or if you want something a bit more in depth, just click on the video below and you can watch an excerpt from Elder Law University’s session on powers of attorney (the video is about 20 minutes long).

What Is A Power of Attorney?

A power of attorney (or a POA) is an instrument in which a person called a “principal” appoints a person called an “agent” or an “attorney in fact” to manage some or all of the principal’s financial affairs.

By the way, an “attorney in fact” need not be (and usually isn’t) an attorney. The word “attorney” comes from the old French Norman word “attourne” meaning “one appointed.”

Is All This Really Necessary?

Without a power of attorney, if a person becomes incapacitated many of her affairs may be unmanageable without a court-appointed guardian or conservator. This will likely involve paying an Appointed One (ok, ok . . . an attorney) to bring a conservatorship petition, court supervision of the conservator, likely payment of a bond, and add all sorts of additional pressure on the family.

It doesn’t matter a bit that the incapacitated one is married because the ability of a spouse to manage many affairs is limited.

In fact, as I have written, if a principal is concerned with managing money in case she becomes incapacitated, a power of attorney is a much better way to manage money than setting up a joint account with someone else (perhaps a child).

Broad? Or Narrow?

A POA can be very narrow. “I hereby appoint Joe to manage my checking account while I am out of the country through next month.”

A POA can be very broad. “I hereby appoint Joe to do anything and everything I could for myself until further notice.”

“Durable” confuses many. In many states a POA will become invalid after the incapacity of the principal unless the POA specifically states that the POA continues in effect after the incapacity of the principal. In any event, to use quaint terminology, a POA designed to last beyond the incapacity of the principal is said to be “durable.”

Now? Or Later?

A Principal may wish to appoint an Agent with immediate authority to act, but subject to a mutual understanding that the Agent will not do anything until needed. Thus, an “immediate” power.

On the other hand, the Principal may be a bit nervous about vesting too much power too soon in the Agent and might prefer to specify that the POA does not become effective until after the incapacity of the Principal. Thus, a “springing” POA.

My usual question to a client wanting a springing POA is: If you don’t trust the Agent NOW, how can you trust her LATER when you won’t be able to do anything about it?

Is It Christmas Yet?

By the way, unless the POA specifically allows for gifting, the Agent won’t be able to make gifts, even if the POA is otherwise broad. Gifting, by the way, isn’t referring to Christmastime, it is referring to the ability to move assets around for planning purposes . . . which could be critical.

Back to the old trust issue. Restrictions can be put on gifting. Perhaps written permission from a sibling, a trusted advisor or friend.

POAs are important. And tricky. The best approach is to have an attorney draft one for you.