Assigning durable power of attorney can be a crucial step as you begin your estate planning, but it’s important to understand upfront the role this person will play and how you can limit and manage it while you are still mentally capable.
What is a Power of Attorney?
The term “power of attorney” can seem a bit of a misnomer since the person you choose for the role doesn’t actually have to be an attorney, it can be anyone you trust to handle your finances and other personal decisions. There are two main types of power of attorney that you’ll need to know.
A general power of attorney assigns an individual (called they attorney-in-fact or agent) a wide scope of powers to make almost every legal decision that you (the principal) would make for yourself. Simply, it’s giving someone else the power to act in your place.
A durable power of attorney differs from the general designation in that it stays in place after you’ve become incapicated in some way and have become mentally incompetent of acting on your own behalf. This person can then make decisions about your finances and medical care when you are unable.
There are a few ways your attorney-in-fact can take over in your stead. It could be due to an accident, a medical emergency, or a slow cognitive decline due either to disease or old age. Even if your condition is expected to improve and you're expected to make a full recovery, the durable power of attorney is still initiated and will stay in place until you’ve recovered.
What is the Difference between a Durable Power of Attorney and a General Power of Attorney?
The only main difference between general power of attorney and durable power of attorney is what happens when you become mentally incapaciated. For a general power of attorney, your agent’s power is immediately revoked if you become unable to act on your behalf, whereas a durable power of attorney starts immediately when you become incapactated. The name “durable” implies that this power is lasting and extends farther than general power of attorney.
What Rights Does a Durable Power of Attorney Have?
In general, your attorney-in-fact has every right you would have for making decisions if you were mentally capable. This is what’s called ageneral durable power of attorney.
If you wish to limit the powers of your attorney-in-fact you can write out a limited durable power of attorney document that would only allow your agent to make specific decisions for you such as on property or investment accounts only. For either designation, you may want to notify your banking or investment institutions of your choice.
If you choose to have a general durable power of attorney, you can also designate whether their power will be executed immediately, or if it’s contingent on your mental incapacity. If you choose the latter, it’s very important to include specific language that goes over the exact circumstances that must be in place for you to be deemed incapable.
A durable attorney-in-fact responsibilities could include making decisions about:
- Business holdings
- Investment or brokerage accounts
- Medical decisions
- Buying and selling of property holdings
- Bank accounts
- Filing tax returns
- Seeking out government benefits
It’s also worth noting that your durable attorney-in-fact’s powers are immediately revoked if you die. At this point your will and estate plan or trust will go into effect and your executor will take over this role.
Why Designate a Durable Power of Attorney
Many estate attorneys and legal professionals will tell you that assigning the durable power of attorney is the single most important thing you can do while estate planning. If you do not designate someone while you are still mentally capable, the courts will assign a conservator or guardian for you.
This means your family will have to go through the court system to first have you deemed mentally incapable of acting on your own behalf, and then the judge will have to choose someone to make your financial and medical decisions for you. This not only means a lot of time, money and hassle, but it also means that you have no control over who the court chooses.
What if I Decide not to Appoint a Durable Power of Attorney?
Some people may intentionally decide not to assign a durable power of attorney, and there could be valid reasons for doing so. If you don’t know anyone who is qualified or that you would trust enough to carry out your wishes and make decisions on your behalf, you may be better off letting the courts decide.
In this case a court would assign someone called a conservator or guardian who would carry out many of the same functions a durable attorney-in-fact would, except now their actions and decisions would be overseen by a judge. This adds an extra level of protection and oversight for your financial and medical well-being.