Life can come at you quickly. Accidents, health emergencies, and diseases of age may render you unable to manage your financial affairs. At some point, someone will need to pay bills, manage investments, and make financial decisions on your behalf. While incapacity can place a major strain on your finances, creating a durable power of attorney will help ease these potential burdens.
A durable power of attorney allows you to elect the person you would like to act on your behalf. That person is called your “agent,” and the term “durable” means that your agent will have continued authority to act on your behalf, and that that authority does not extinguish upon incapacity, as may be the case with other power of attorney documents. While your agent is duty bound to act in your best financial interest at all times, they often have broad powers over your property. You can, however, place restraints on your agent in the terms contained in your power of attorney document.
CAN YOUR POWER OF ATTORNEY ABUSE THEIR PRIVILEGES?
Some individuals express concern that because an agent’s powers are so comprehensive there is potential for an agent to abuse them. One way to address such a concern is through the use of a power of attorney known as a “springing” durable attorney. A springing durable power of attorney restricts your agent from acting on your behalf until you are determined to be incapacitated. At that time, and only at that time, your agent’s authority “springs” into existence. In your springing durable power of attorney, you choose how your incapacity is to be defined, whether that is by recommendation of your primary care physician, by the recommendation of two independent physicians, or in the determination of a trusted family member or advisor. Preemptively defining how your incapacity is to be established helps avoid costly and public court proceedings.
WHEN A POWER OF ATTORNEY MIGHT BE A GOOD IDEA
Alternatively, you can create a “general” power of attorney which allows your agent to act on your behalf from the moment you execute the documents. This eliminates the need to prove or establish incapacity because your agent can act on your behalf even if you are not incapacitated. A general power of attorney can be highly beneficial in the event that you are detained, traveling, or unable to act for any reason. This general power of attorney can be especially useful for busy business owners, students going off to college or studying abroad, or elderly individuals who still have capacity but may have physical limitations that make it difficult for them to manage their financial affairs.
Because your agent will have such encompassing powers to act on your behalf, great care should be taken when choosing your agent. You will want your agent to have an understanding of your general intentions for your property. Your agent should also be capable, trustworthy, and willing to manage your financial affairs. In the event that you become incapacitated without having executed a durable power of attorney, your family may have to petition the court to establish your incapacity and appoint a conservator to assist in the management of your property which can be both costly and time-consuming. In order to avoid the unnecessary hassles and costs associated with those proceedings, everyone should create a durable power of attorney.
Andrew S. McCullough is an associate attorney with the firm of Brindley Sullivan.