A Guide to the Power of Attorney
“If you do not have a will or plan for your estate, then the government has one for you.”
Estate planning is much more than just having a will; it's a comprehensive strategy that safeguards your assets and ensures your wishes are honored. It often includes documents like a will, trusts, healthcare directives, and perhaps most importantly, a Power of Attorney (POA). A POA grants someone you trust the legal authority to act on your behalf, especially when you're unable to do so yourself. This is crucial because life can be unpredictable.
A few years ago, I had a client who unexpectedly fell ill and was temporarily incapacitated. Because she had a Durable POA in place, her son was able to manage her finances, pay bills, and handle business matters without interruption. Without that POA, her affairs could have fallen into disarray, causing significant stress and potential financial hardship.
More recently, another client suddenly needed to move into an assisted living facility due to his declining health. He had granted his daughter a Durable Power of Attorney, which allowed her to not only manage his bank accounts and pay his bills, but also to handle the transactions for his rental property that was a significant part of his income. Without the POA, my client would have faced significant challenges in managing these affairs, especially given his health condition, and his daughter would have been unable to legally act on his behalf.
These examples underscore why a well-considered POA is not just a legal formality, but a vital component of a robust estate plan, providing peace of mind and protecting your interests when you need it most.
Let’s cover some essential information regarding the role and responsibilities associated with being named a Power of Attorney (POA).
This is a critical aspect of estate planning and can have significant implications for both you and the principal (the person who has granted you this authority).
What is a Power of Attorney (POA)?
A Power of Attorney is a legal document that grants a person (referred to as the agent or attorney-in-fact) the authority to act on behalf of another person (the principal). The extent of this authority is explicitly outlined in the document. It can range from very broad, sweeping powers to limited authority for specific circumstances.
There are different types of POAs:
Immediate POA: Goes into effect as soon as it is signed.
Springing POA: Only becomes effective if the principal loses capacity. However, the Springing POA is less favored in estate planning because proving incapacitation can be challenging.
It’s crucial to understand the specific terms outlined in the POA document you hold, as this will dictate the scope of your responsibilities and powers.
Your Responsibilities as a POA
Being named as a POA means you have the legal authority to act on someone else’s behalf. This role is often utilized when the principal becomes ill, disabled, or is otherwise unable to manage their affairs. Here are some common responsibilities you may be expected to undertake:
Financial Management: Oversee and manage the principal’s financial affairs.
Bank Accounts: Have direct access to and manage the principal’s bank accounts.
Insurance Decisions: Make decisions regarding the principal’s insurance policies.
Estate Documents: Maintain possession of and manage estate documents.
Tax Returns: File the principal’s tax returns.
Safe Deposit Box: Access and manage items in the principal’s safe deposit box.
Real Estate Transactions: Sign documents related to the sale or purchase of real estate.
Detailed Record-Keeping: Keep meticulous records of all financial transactions, including bills paid, assets sold or traded, and income collected. It’s also important to document your own expenditures if you seek compensation for your efforts (e.g., saving gas receipts, mileage, etc.).
What a POA Cannot Do
While the POA grants significant authority, there are limits to what you can do:
Write, Amend, or Revoke Estate Plans: In most states, you cannot write, amend, or revoke a will, trust, or other estate planning documents.
Vote on Behalf of the Principal: You cannot vote in public elections on behalf of the principal.
Make Decisions Beyond the Document: You cannot make decisions that are not explicitly stated in the POA document.
Transfer Assets to Yourself: You cannot transfer the principal’s assets into your own name unless explicitly authorized.
Borrow or Lend Money: You cannot borrow or lend money on behalf of the principal unless the POA document specifically grants this authority.
Durable Power of Attorney
One important aspect to understand is the concept of a "Durable" Power of Attorney. A Durable POA remains in effect even if the principal becomes physically or mentally incapacitated. This means your responsibilities and authority will continue regardless of the principal’s health status. Without this durable component, your role as POA would cease if the principal becomes incapacitated.
Action Items
Being named a POA is a significant responsibility and a powerful tool in estate planning. Here are some suggested next steps:
Review Your Existing Estate Plan Documents:
If you have a Power of Attorney document, carefully review it. Understand whether it's an "Immediate" or "Springing" POA, and confirm if it is "Durable."
Ensure you are familiar with the scope of authority granted to your agent/attorney-in-fact.
If you don't have a POA, consider creating one as part of your overall estate plan.
Communicate with Your Designated Agent/Attorney-in-Fact:
If you've named someone as your POA, discuss the document with them. Make sure they understand their responsibilities and limitations.
Provide them with copies of the relevant documents and clarify your wishes.
Ensure they know where to find important documents like bank account information, insurance policies, and estate documents.
Keep Detailed Records:
If you are currently acting as someone's POA, begin or continue to keep meticulous records of all financial transactions.
Document all decisions made on behalf of the principal and retain receipts for any expenditures.
Contact a Professional for Clarification or Assistance:
If you have any questions about the POA document, your responsibilities, or any aspect of estate planning, contact a legal or financial professional.
My team and I can help you navigate this important responsibility.
Assess and Update Your Plan Regularly:
Estate plans should be reviewed periodically, especially after major life events.
Ensure your POA and other estate documents still reflect your current wishes and circumstances.
~Alex
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