What is a Durable Power of Attorney?
Durable Power of Attorney for Finances
Mankind has yet to learn how to predict the future. Since we never know what will happen next, it is important to have an estate plan in place to protect your interests at all times. An estate plan protects your family and ensures that your wishes are fulfilled upon death or incapacitation. As part of the estate plan, a durable Power of Attorney (POA) allows you to appoint someone to control your finances in the event you become incapacitated. Depending on your specific wishes, this person can:
- use your assets to pay your everyday expenses and those of your family
- buy, sell, maintain, pay taxes on, and mortgage real estate and other property
- collect Social Security, Medicare, or other government benefits
- invest your money in stocks, bonds, and mutual funds
- handle transactions with banks and other financial institutions
- buy and sell insurance policies and annuities for you
- file and pay your taxes
- operate your small business
- hire someone to represent you in court, and
- manage your retirement accounts.
What is a Power of Attorney?
A Power of Attorney is a legal document where you (the “principle”), give another person (the “agent” or “attorney-in-fact”) the legal authority to act on your behalf. Your agent does NOT have to be an actual attorney, or a financial expert. It is most important that your agent is someone with common sense, whom you trust completely.
Depending on your wishes, the agent’s power may be broad or limited to specific actions under certain conditions. You can grant your agent control over all financial decisions and matters, or the power can be limited to a single transaction or circumstance. Since the POA only affects your rights, you are in sole control of how much power is transferred.
What’s the difference between a Power of Attorney and a Durable Power of Attorney?
Most people are unaware that there are different types of POAs. However, the type of POA has important implications. Most importantly, a general Power of Attorney terminates automatically when the principle becomes incapacitated. This means the agent has no further authority to act once the principle is incapacitated.
If you want your agent’s power to continue during incapacitation, you will need a DURABLE Power of Attorney. A durable POA remains in effect if you become incapacitated, allowing your agent to continue handling your affairs. Unless revoked, the durable POA will exist indefinitely, terminating automatically upon your death.
How much power will my agent have?
You are in sole control over how much power your agent will have. You can grant or withhold any specific power, or you can grant your agent broad power to control all of your finances. If you choose not to limit your agent’s power, they will generally be able to:
- buy, sell, lease, encumber, maintain, insure, or improve any real property interest.
- buy, sell, lease, encumber, maintain, insure, or improve any tangible(physical/personal) property interest.
- buy, sell, exchange, assign, redeem, or transfer any stocks and bonds, as well as voting at any associated meeting.
- buy, sell, expand, continue, conduct, terminate, or liquidate any business operation, including exercise of any powers which the principal could exercise if present and not incapacitated.
- borrow money, renew securities, pay any debts owed, and to receive, sign, endorse, deliver, or possess checks, stocks, deposits and notes.
- exercise or renew any right or obligation of life, health, accident, disability, liability or other type of insurance.
- exercise all powers with respect to estates and trusts which the principal could exercise if present and not incapacitated.
- commence, defend, settle, or compromise any legal proceeding concerning the principal or principal’s property.
- hire, remove, or replace accountants, attorneys, nurses, physicians, agents, or workers for maintenance of the principal or their family.
- prepare, sign, file, and exercise all powers related to Social Security, Medicare, Medicaid, unemployment, military service, or governmental benefits.
- contribute to, withdraw from, or change options under any retirement plan.
- prepare and file all tax, social security, or unemployment returns required by the United States, any individual state or locality, or any foreign government.
You agent MAY NOT make or change a will and may not revoke or amend a revocable trust.
When does my durable Power of Attorney go into effect?
The way a POA is drafted will dictate when it goes into effect. In cases where the principal wants their spouse or agent to have continuous control over finances, the POA can be drafted to take effect immediately. This allows for joint control, transferring the designated powers to your agent as soon as the document is signed.
When the principle prefers to maintain full control over their finances unless and until incapacitation, a “springing” durable POA may be preferred. This POA will not go into effect until a doctor has certified that you have become incapacitated. Your agent, therefore, will have no power until it springs into effect upon your incapacitation.
When does the Power of Attorney end?
Your POA is freely revocable at any time, as long as the principle remains mentally competent. If you change your mind in the future, you can change your POA or appoint a new agent at any time by executing a new POA. In California, POAs appointing a spouse as the agent will terminate automatically upon divorce.
Any POA document will terminate automatically upon the principle’s death. Any wishes for after death, such as burial or funeral arrangements, must be included in your will, as your agent will have no power remaining upon termination of the POA. If you want your agent to continue handling your affairs, they should also be named as the executor of your will.
Finally, your POA may terminate automatically if no agent is available to serve. This can happen when the named agent is deceased, incapacitated, unable, or otherwise unwilling to serve in the position of agent. As a best practice, we recommend naming at least one alternate agent who you trust to take over in the event your preferred agent is unable to serve.
In California, durable Power of Attorneys are governed by Sections 4000-4545 of the California Probate Code. Because a durable POA confers broad powers on your agent, we recommend working with an attorney to ensure that the document, and your agent, carries out your wishes. Contact our office today, at 833-422-5529, for more information on how to protect yourself in the case of a medical emergency.