Why Your Estate Plan Needs a Durable Power of Attorney
April 26th, 2017
If you've taken the time to create an estate plan, congratulations! This is an important task that too many people put off. If someone asked you why you created an estate plan, what would you say? Most people would answer that question with "to provide security for my family after I'm gone," or maybe "to avoid my estate going through probate."
There's another important reason to prepare an estate plan, though, and it's one to which far too many people don't give any consideration: the possibility of lifetime disability. If you were to suffer an injury or an illness such as Alzheimer's disease that incapacitated you, would your estate plan protect you and your family? If the answer is "no," then you need to incorporate a durable power of attorney into your estate plan.
What is a Durable Power of Attorney?
A power of attorney is a document that gives another person (your agent) authority to act on your behalf. What makes a power of attorney durable is a statement within the document that it (unlike an ordinary power of attorney) will remain effective in the event you become legally incapacitated. In order to be effective, a durable power of attorney needs to be made before you are disabled. There are durable powers of attorney for financial issues and health care matters, but this article will focus on financial powers of attorney.
A durable power of attorney can be made "springing," so that it takes effect only in the event of your disability. It should specify clearly what constitutes that disability, so that your agent will be able to document that you are, in fact, incapacitated, and that they are therefore authorized to act on your behalf.
You can revoke a durable power of attorney while you are still legally competent. This revocation must be in writing and should be delivered to the agent and any third parties, such as a bank, with which the agent may be dealing on your behalf.
What are the Benefits of a Durable Power of Attorney?
Let's talk about what might happen if you didn't have a durable power of attorney and became incapacitated. If you are married and have joint ownership with your spouse, they can still write checks on your joint bank account and make withdrawals, but they cannot take other actions. They can't sell jointly-owned real estate without your valid signature, or change beneficiary designations on retirement accounts or your life insurance policy, for instance.
Because there would probably be some financial matters that could not be handled other than by you or an agent, the next step would be for someone close to you to petition the probate court for a legal guardianship over your affairs. The court might appoint a guardian you would be comfortable with, but need not do so. And the process of getting a guardian appointed takes a little time, and could be very stressful on your family.
Now, imagine that you do have a durable power of attorney. If you become incapacitated, a person of your choosing is handling your affairs with exactly the amount of power you chose to convey. Your agent can handle your business with no court intervention, unless someone close to you feels they are abusing their power and takes legal action to stop them.
What Actions Can My Agent Take on My Behalf?
You can customize a power of attorney, granting your chosen agent extremely limited or very broad authority over your affairs.
You may grant your agent the power to:
- Handle legal claims
- Enter into contracts for services
- Pay for your support and care
- Handle bank transactions
- Manage retirement or life insurance benefits
- Prepare and file tax returns
- Collect Social Security and other government benefits on your behalf
- Gain entry to safe deposit boxes
- Exercise stockholder rights
- Participate in Medicaid planning
No matter how much power you choose to grant, however, you should choose an agent that you trust completely. You want an agent who will honor their commitment to act in your best interests.
Because a durable power of attorney transfers so much of your power into the hands of someone else, be sure to have it drafted by an experienced estate-planning attorney who will write it as narrowly as possible and be able to explain all the risks and benefits of the document you're signing.