Creation of a power of attorney allows you or your aging loved one to appoint an agent to act on his or her behalf should they become incapacitated. Appointing a power of attorney provides you or your loved one with assurance that someone they trust will be making financial decisions in his or her best interest. If a power of attorney is not appointed prior to incapacitation, the family likely would be forced to undergo expensive and time-consuming measures to court-appoint a guardian or conservator to handle their financial decisions.
What is a Financial Power of Attorney?
A document in which the principal (you or your loved one) appoints an agent to act under specified circumstances. The Principal can decide what she will allow her agent or representative to decide for her, and should plan for a broad range of responsibilities to fit his or her future needs. For example, many people allow their agent to handle some or all of the following: handle everyday expenses, investments, file and pay taxes, maintain or sell property, collection of government benefits, maintain, buy, or sell insurance policies, maintain a small business, trust creation or maintenance, hire an attorney, and manage retirement accounts. The agent has a duty to act in the best interest of the principal, not commingle their property with yours, avoid any conflicts of interest, and retain accurate records.
Types of Power of Attorney
A financial power of attorney can take effect immediately when the form is signed, or it can be drafted so that it only begins upon the occurrence of a specific event, i.e., incapacitation. Many spouses maintain ongoing, active power of attorney designations in the event something unexpected happens to one spouse. It is the principal’s decision when a power of attorney begins and ends.
Conventional Power of Attorney: Effective when signed by the principal and ends when the agent becomes incapacitated themselves.
Springing Power of Attorney: Effective only when a specified even occurs, (i.e. the principal’s incapacitation), allowing the principal to remain in control of his affairs until the event. A springing power of attorney can create a whole host of problems for your agent if the form is not drafted to explain exactly when the specified event is deemed to have occurred, and the power of attorney then “springs” into action.
Durable Power of Attorney: Effective when signed by the principal, and remains in effect throughout the principal’s life, unless he or she revokes it. A durable power of attorney is often the best choice, because it remains in effect even after the principal recovers from incapacitation. There is also no ambiguity as to when this type of power of attorney takes effect. The principal can remain in control of her finances even after signing, until she can no longer make sound decisions.
Termination of a Power of Attorney
A durable power of attorney terminates at the principal’s death. As a result, you cannot give your agent power to handle your estate – naming the executor of your estate is a separate process entirely. Power of attorney can also terminate if revoked by the principal (so long as they are of sound mind), divorce (if you designated your spouse as your agent), invalidation by court order, or your agent is unavailable.
Contact an Experienced Attorney
Creation of an estate plan, including a power of attorney, can be a complex and overwhelming legal endeavor. The knowledgeable attorneys at the Leslie Legal Group are here to help guide you through this process and create an estate plan that is right for you. We will ensure that you understand every step in the estate planning process. Contact us today for a consultation.