A Power of Attorney is a legal document delegating legal powers of the Principal to an Agent (aka Attorney in Fact) act on behalf of the Principal. The Agent may be granted authority to make decisions regarding financial matters, legal issues and real estate.
Powers of Attorney can be broad or defined in scope as to specific acts that may be undertaken by your Agent. They may also be created to carry out specific acts. People taking extended trips would benefit from granting Powers of Attorney to an Agent to handle their affairs, but also to limit the scope in which they may act. It is important to have a qualified Attorney draft these documents so that you are not granting too much authority to your Agent.
Non Durable Powers of Attorney take effect immediately and remain in effect until the Principal either revokes the powers or becomes mentally incapacitated or incompetent. Powers of Attorney may also be crafted to be Durable and/or Springing.
DURABLE POWERS OF ATTORNEY
Durable Powers of Attorney also go into effect immediately (unless they are Springing – see below) but, unlike non Durable Powers of Attorney, remain in effect even after the Principal becomes mentally incapacitated or incompetent.
Without the Durable Power of Attorney, probate proceedings will be initiated if you become incapacitated or incompetent to determine a personal representative for you. Having Durable Powers of Attorney in effect before your incapacitation or incompetency, will allow you to avoid probate and have the person(s) you name to be your Agent act according to the powers you grant to them.
SPRINGING POWERS – THE BAND-AID TO DURABLE POWERS OF ATTORNEY
Because Durable Powers sometimes need a band-aid, the question is begged, “What needs to be fixed”? Granting durable powers during someone’s lifetimes is a double edged sword in that the Agent has, immediately upon granting the powers, the power to exhaust all of your assets and create liabilities in your name. Your only recourse would be to sue them after the fact for breach of their fiduciary duty. It is therefore, very important to consult with an Attorney before purchasing your Powers of Attorney in a box from your local office supply store or other “professional”.
Here’s what the competent advisor does: many attorneys will either create Springing Powers (which necessitates additional language causing the powers to only “spring” into effect upon some conditions such as the confirmation by 2 or 3 doctors certifying that you are unable to care for yourself. Alternatively, attorneys will hold the powers in escrow in the attorney’s office so that they can only be delivered to your Agent upon incapacity or disability.
One safeguard some advisors recommend to avoid your Agent or Attorney in Fact making the wrong decisions is naming more than one attorney in fact, but this necessitates two signatures on every transaction.
Don’t leave your durable powers of attorney in a safe deposit box. If your attorney in fact has no access to the document, it will be useless. Either give them to your Agent if they are Springing or leave them in Escrow with your Attorney.
Important Lesson: Consult with an attorney to avoid costly probate procedures and to granting powers before necessary.
