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 financial purposes when and if you ever become incapacitated due to dementia or some other reason. The agent under the power of attorney can quickly step in and take care of your affairs.
But in order to execute a power of attorney 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 then? 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. In addition- under a guardianship or conservatorship- the representative may have to seek court permission to take planning steps that he or she 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 the capacity to execute the document is lost. 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 he trusts the agent to manage his financial 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. In Virginia- the capacity to enter into a power of attorney is the capacity to contract- though arguably this may vary somewhat depending on the scope or breadth of the power of attorney. For example- a specific purpose power of attorney to sell ones former home- might require a lower level of capacity than a broad- all-inclusive power of attorney that gives an agent authority over all of your spheres of your financial and business life.
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. Most states require the court to respect your nomination “except for good cause or disqualification.”
Because you need a third party to assess capacity and because you need to be certain that the formal legal requirements are followed- it can be risky to prepare and execute legal documents on your own without representation by an attorney. To execute a durable power of attorney before it’s too late- contact your elder law attorney.