Estate Planning

The Durable Power of Attorney for Financial Affairs

3 views November 11, 2014 0

A “power of attorney” is a legal document in which a person, called the “principal,” (let’s say that’s you) appoints another person, called an “agent,” to act for the principal in a specified capacity. Often, a power of attorney is “general,” giving the agent broad powers to manage the principal’s financial affairs (property, money, bills, taxes, etc.). Powers of Attorney can, alternatively, be “limited” by granting limited powers or powers over certain assets.

A Power of Attorney is “durable” if it remains effective even if you become incapacitated (i.e., unable to act for yourself). So, a General Durable Power of Attorney is a legal document that appoints someone to manage essentially all of your financial affairs and is effective even if you become incapacitated.

Exactly what it means to be “unable to manage your financial affairs” might seem dangerously fuzzy. But Power of Attorney documents (and/or state laws) specify what “incapacity” means and when a person is “incapacitated.”

Limits on an Agent’s Power

The law imposes fiduciary duties upon agents: your agent is obligated to act in your best interest and has other duties to you. Power of Attorney documents often include additional restrictions on an agent’s powers.

Also, when you sign a Power of Attorney as the principal, you aren’t signing away your powers to manage your affairs; rather, you just giving someone else power to act concurrently with you.

When does the Power of Attorney become effective?

Often, Powers of Attorney are designed to be effective as soon as they are signed. Alternatively, a Power of Attorney can be written so that it’s only effective if you’re actually incapacitated (called a “springing” power). The downside of this sort of power is that the determination of incapacity can take some time. Also, these springing powers of attorney can’t be created under the law of certain states (i.e., Florida).

When does a Durable Power of Attorney cease to be effective?

Your Durable Power of Attorney ceases to be effective if you die. (This means a Durable Power of Attorney is not a substitute for a will.) Also, you can revoke your Power of Attorney whenever you wish to do so (assuming you have the requisite mental capacity).

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