Understanding what a Durable Power of Attorney (POA) is can be critical when doing your Estate Planning.
Here is another term that can be very confusing. I have come across many people that say they don’t have a durable POA because they don’t want their attorney (or whoever acts as the power) making the decisions. Let’s take a closer look at what this term really means.
The first thing to know is that just because the term has Attorney in it, you do not have to have an attorney involved in your POA. This is just a term not a description of who. This will become clearer as we move along.
Another thing to know is that there are more types of POA's then the durable kind. I will discuss the other types of Power of Attorney in the following.
Durable – As in lasting, tough. Meant to last.
Power of Attorney – this is a legal document that allows person A to grant the authority to person B to act for person A in any legal capacity. In other words, person B legally becomes person A when it comes to transactions.
If you give person B a POA they can buy or sell a car in your name, buy property in your name, sign legal agreements in your name, and any other legal actions you could do (remember that YOU COULD DO, it comes up later).
You can give someone a POA for a specific purpose. If you have ever bought a car from a dealership, you probably signed a power of attorney for them to transfer the title into your name.
That was ALL they could do with that power. That would be SHORT TERM POA or SPECIFIC POA.
If you have ever been out of the country you may have signed a specific POA for a babysitter that was watching your children, or any other number of things.
A LONG TERM POA is one that allows person B to act as person A for a lengthy period of time.
An Escrow POA is one that is held by a third party who places the POA in effect based on certain circumstances. You clearly define what the circumstances are that allows the POA to be pulled out of escrow. For instance, you could sign a POA that when you are vacationing in France your neighbor has the POA to sign insurance documents IN THE CASE your house burns down. That POA is held in escrow until your house burns down. Then the third party (usually an attorney) activates the POA so your neighbors can sign insurance documents.
A Durable Power of Attorney can be either long term or springing. The most common Durable POA is allowing person B to act for you, carry out your living will, or help made decisions for you concerning you health care if you become incapacitated.
So under what circumstances should you have a POA?
The reasons people have a POA are a numerous as the people themselves. However, in estate planning they have some specific situations.
Let me tell you a personal story.
My father died at 88 leaving my mother who also was 88 at the time. Mother didn’t know, really, how to handle money, invest, or keep track of what she had. We immediately went to an estate planning attorney and she made me and my sister her Durable Power of Attorney. I was able to manage her money for her, help her make healthcare decisions, and other things she found hard to do. As she grew older and older, it became more important for me to manage her affairs. She lived until 95 and never worried if she was handling things properly.
So why do you need a power of attorney? Because there will probably come a time when you cannot do things for yourself. You will need someone else to take action. The power of attorney gives them this authority.
So, if a durable POA allows someone to act for you, how long can they do this?
You can specify a period of time.
Or, as long as you are in "sound mind" (in other words you have not been diagnosed with Alzheimer's or some other disorder that inhibits you from making valid decisions) you can invalidate a POA. In other words, take it back.
A Durable Power of Attorney (or any kind of POA for that matter) becomes invalid upon person A’s death. Remember I said earlier that person B can only act for you on things YOU COULD DO. If you can’t do them (i.e. your dead), your POA can’t do them. It’s that simple.
A POA is a very powerful legal instrument (no pun intended there). You should be very careful when choosing who will be your POA. My mother trusted my sister and me explicitly. She knew we would not take advantage of her or use her in any way. Make sure you have someone you can trust that much.
If you don’t have someone, there are professionals that can act as a POA. Your attorney can be a POA. However, they will charge you full amount, and that can add up.
Take a look at this website. www.professionalfiduciary.com. This is a professional POA. She is legally bound to act in the best interest of her clients. You may choose this as your answer to a POA.
Also many banks offer a wealth management department. Even if you don’t have a lot of money, they will become a POA for you if you bank there.
Just so you know, a POA can also be known as a Financial Power of Attorney, Letter of Attorney, Attorney in fact, or agent.
The terms regarding POA can be different from state to state. You can prepare a POA from a legal website but please consult an attorney to make sure it will hold up in court in you have to enforce it.