A general durable power of attorney for your finances is one of the most important estate planning documents you can have. It allows you to appoint someone to manage your business- legal- and financial affairs for you (your “agent” or “attorney-in-fact”) if you become incapacitated. Without this document- your loved ones would not be able to make decisions for you or manage your finances without asking the court to appoint a conservator- which is a much more expensive- time-consuming- and public process.
There are many do-it-yourself power of attorney forms available; however- it is a good idea to have an attorney draft the form for you. There are many issues to consider and one size does not fit all.
The agent’s powers
The power of attorney document sets out the agent’s powers. Powers given to an agent typically include buying or selling property- managing a business- paying debts- investing money- engaging in legal proceedings- borrowing money- cashing checks- and collecting debts. You need to make sure that you are distinguishing between a document that is for the purpose of managing medical treatment and a document that is for the purpose of managing finances. Some financial and legal powers will not be available to your agent unless they are specifically mentioned. This includes the power to make gifts and the power to designate beneficiaries of your insurance policies.
The power to make gifts of your money and property- and otherwise manage your estate planning during your lifetime- is particularly important- but is also a power that needs to be thoughtfully considered. If you want your agent to have the authority to do Medicaid planning on your behalf in the event you need to enter a nursing home- then the power of attorney must give the agent very specific types of powers to make gifts- create and modify trusts- and add and remove property from trusts. The wording in a power of attorney will determine the exact powers available- so it is necessary to consult an attorney to ensure that the proper planning techniques are being preserved.
Springing or immediate
The power of attorney can take effect immediately or it can become effective only once you are cognitively impaired. The latter type of document is called a “springing” power of attorney. While a springing power seems like a good idea- it can cause delays and extra expense because the impairment will need to be determined and documented. If the power of attorney is springing- it is very important that the method for determining impairment is clearly spelled out in the document. If not- your agent may be unable to use their powers as you intended.
While it is possible to name more than one person as your agent- this can lead to confusion. If you do have more than one person named- you need to be clear whether both parties need to act together or whether they can each act independently. In all events- it is best practice to name an alternative (or successor) agent to act in case the first agent is unable to. You should be aware that- as of the date of this newsletter- many agents are encountering significant difficulties persuading banks to work with a document that has named joint agents – not because the document is wrong- but because the bank’s operating policies regarding joint agents are different than the law regarding joint agents.
Appointing a conservator
Another use of a power of attorney can be to nominate a conservator in case guardianship or conservatorship proceedings become necessary. This nomination won’t be binding on the judge- but the judge is legally required to take your preference for a conservator into account. The court always has the final say on who it will appoint as your conservator- but the court will give serious consideration to your nomination in the general durable power of attorney for finances.
Executing the power of attorney
To be valid a power of attorney must be executed properly. Some states may require a signature- others may require the power of attorney to be notarized- and still others may require witnesses. It is important to consult with an estate planning attorney in your state to ensure your power of attorney is executed properly. In Virginia- there is no requirement that the signature be witnessed or notarized- but the document will be virtually impossible to use if the signature is not witnessed and notarized.
Accepting a power of attorney
Even if you do everything exactly right- banks and other institutions are reluctant to accept a power of attorney. These institutions are afraid of a lawsuit if the power of attorney is no longer valid or is not expansive enough to authorize a transaction. Many banks or other financial institutions try to pressure you into signing their own standard power of attorney forms (often after you have developed a cognitive impairment). You could choose to execute the forms offered by the institutions- but you must be aware that you could be restricting your agent’s ability to deal with your assets- and you could be setting up a conflict in your family if you have chosen two different agents for the two different documents.