Why You Need a Durable Power of Attorney For Finances
Incapacitation is a possibility for people as they grow older. A durable power of attorney assigned to a trustworthy and responsible individual can help alleviate worries that health problems will prevent you from handling financial matters at some point in the future. Unfortunately, incapacitation can happen to anyone at any time.
Therefore, it’s essential to understand how to protect yourself from having your money being left to the mercy of the state. The best way to do this is to execute a durable power of attorney in order to appoint an “attorney in fact.” This should be someone you know and trust, because he or she will have the legal authority to act in your stead if you cannot.
Cover the Bases
Even married couples need to be able to assign legal authority, since it typically makes the process of dealing with financial matters much easier. As an example, in order to sell jointly owned real estate, both spouses generally have to agree. If one spouse cannot agree due to incapacitation, it is necessary to institute a guardianship proceeding, which can be costly and time-consuming.
In such an event, the spouse of the alleged incapacitated person or another party submits a petition to a court. (Requirements vary from state to state.) The petition is for authority over some or all of the financial affairs of the incapacitated person. This can be very humiliating because the burden of proof is on one spouse to show that the other spouse cannot handle these matters anymore. Obviously, to fulfill the requirements of this proof demands evidence gleaned from intimate personal details of a married couple’s life. Also, a hearing is necessary and the alleged incapacitated person must receive notice and has the right to appear and challenge the petition.
At the end of the process, a person is appointed by the court as guardian of the estate, which is then placed into conservatorship under the guardian’s authority. A guardian can either handle an individual’s care or and individual’s finances, or both. Also, at the conclusion of the proceedings, the petitioner is required to pay the various legal fees that result. In addition, the petitioner has to seek court approval for basic legal actions, such as selling real estate, and has to provide an accounting to the court.
If you give a durable power of attorney for finances to an individual who steals or mismanages your property, recovering the funds is extremely difficult, as there is no formal supervision. (You can protect yourself somewhat by limiting the power given to the attorney in fact. For example, you can limit or disallow gift giving.)
Limits of Power
Keep in mind that the power mentioned above is only for financial matters, not those relating to health. There is also a durable power of attorney for the purpose of making healthcare decisions, which may also be called a health care proxy. You have full freedom to choose the person for this role, as well. You may also want to consider a living will, which is a document that overtly specifies your preferences about medical treatment as well as measures designed to prolong life.
In terms of financial matters, unless you specify the power of attorney to take effect when a doctor certifies that you are in fact incapacitated, it will become effective immediately. In that case, you can keep the original power of attorney with your records. Although there is a time-delaying feature (sometimes called a springing power of attorney), which allows you to remain in control of your assets until you are incapacitated to the satisfaction of a medical professional, it can be complex and time consuming. Therefore, a durable power of attorney may be the way to go.
You can revoke a power of attorney (in writing) whenever you wish, which ends the legality permanently, as long as you have capacity to do so.
As laws vary from state to state, consult with your attorney if you are interested in establishing a durable power of attorney for finances.
How Durable Is a Durable Power of Attorney?
A durable power of attorney generally ends upon your death. That means the designated agent will not be allowed to wrap up your affairs after death unless you appoint him or her to be the executor in your will.
A durable power of attorney also ends if:
- While you are mentally competent, you choose to revoke the delegation of power.
- It is determined in a court of law that you signed the authorization while you were incompetent, subject to undue influence, or a victim of fraud. These conditions generally render the power of attorney invalid.
- Your designated agent is unavailable, and you have not named an alternate.
- You name your spouse as your agent and subsequently get divorced, assuming you live in a state where divorce automatically terminates a power of attorney.