What is a Power of Attorney?
A Power of Attorney is a legal document, signed by you as the “Principal” (the person granting the power) and assigning someone else of your choosing (“the Attorney-in-Fact”), in addition to you as Principal, the power to make financial decisions and transactions on your behalf.
*Be careful not to confuse this with the power to make health care decisions for someone else – that is a different legal document with separate powers (Health Care Directive) in the state of Minnesota.
A Power of Attorney is a very powerful document and should be handled with thoughtful deliberation and great care. When you execute a Power of Attorney, it is effective immediately upon your signature (although you may create an expiration date, if you choose). Someone who has been granted this power from you has the same power that you currently possess to make choices about your finances. Think about all the choices you can make about your own finances – withdrawing money from an account, opening and closing a credit account, buying and selling your possessions, including your home, just to name a few. All that is required is that this person to whom you have granted this power (your “attorney-in-fact”) have an original (not a copy), signed and validly executed Power of Attorney that has not been revoked by you.
Your “attorney-in-fact” does not need your permission to make a transaction. And, although they have a legal duty to exercise this power in your best interest, that leaves a lot of room for interpretation. In short, one should think very carefully about granting this power and even more carefully about to whom you assign this power.
Despite my words of caution, however, a Power of Attorney is an essential part of most estate plans. It allows family members and/or friends to assist you with your financial needs if you become unable to handle them yourself, either temporarily or permanently. Without executing a Power of Attorney, you run the risk of needing the court to appoint someone to handle your finances for you (this is called “conservatorship”). This person may or may not be someone of whom you approve!
What makes it “Durable?”
“Durable” in this context means that the Power of Attorney remains valid, even if you lose capacity either temporarily or permanently. If you do not make your Power of Attorney “durable,” then the power you granted will cease upon your incapacity.
Here’s why this is an important choice: For most people, the whole point of executing a Power of Attorney is to have the power in place in the event that you lose your ability to make financial decisions for yourself, either temporarily or permanently. Often individuals carefully pick a trusted family member or friend. When you are well and handling your own finances on your own, you can actively oversee any transactions your “attorney-in-fact” may make. Therefore, there is an easy protection in place if the “attorney-in-fact” makes a financial decision the “Principal” doesn’t appreciate.
But, what if you are no longer able to oversee your finances and supervise the “attorney-in-fact?” Therein lies the crux of the matter and the reason the choice to make the Power of Attorney “durable” or not is an important one – not to mention the importance of carefully picking your “attorney-in-fact.”
When would I choose to make it “Durable” and when would I choose not to?
As an estate planning document, most people would choose to make their Power of Attorney “durable” because they want to preserve their ability to make their own choice(s) for someone to handle their finances in the event of their incapacity. But, again, it’s your confidence level in WHO you select that can assist you in deciding this important question.
Here are some examples to assist you in thinking about this question:
1) Virginia has three grown children and good relationships with all of them. Her eldest daughter, Margaret, assists Virginia in thinking through big decisions now that Virginia’s husband has developed Alzheimer’s. Margaret is interested in her parents’ health and well-being, and can make herself available easily in an emergency. Margaret understands her parents’ finances and concerns, and is a good financial planner herself. Virginia decides to execute a Power of Attorney that makes Margaret her “attorney-in-fact.” Virginia trusts her daughter and knows that she will be able and willing to handle Virginia’s finances for her if she either temporarily or permanently becomes incapacitated. For this reason, she chooses to make the power “durable” so that her daughter, Margaret, has the documentation she needs in place.
2) Jack is an elderly single man who is a retired accountant. He has lived next door to Jane and Paul, a young professional couple with two children, for years. Jane is a really nice woman who has always looked in on Jack to make sure he’s well and has what he needs. It’s hard for him to get around sometimes, and she often picks up groceries for him and medications at the pharmacy, or something else he might need. Jack appreciates her kindness. Jack is currently handling his own finances well, but he has health problems that make it hard for him to get out and run errands. He trusts Jane and has often asked her to take his debit card to the bank and get some cash for him. Finally, he decides to execute a Power of Attorney so Jane can take care of more things for him, like selling his car and closing down some accounts. He chooses not to make the Power of Attorney “durable,” however, because he only feels comfortable with Jane having that power as long as he can oversee and supervise the transactions she handles for him. And, he’s not sure that he trusts Paul as much as he trusts Jane. Jack doesn’t have any trusted family members or friends that he can think of as an alternative, so he decides to go with Jane, but only as long as he remains competent to handle his own finances so he can keep an eye on Jane.
Talk to an attorney who can advise you in this matter and assist you in thinking through your options. A Power of Attorney is a very important and very powerful document. And, the decision to make it “durable” or not is critical.
This blog is written by Bridget-Michaele Reischl, Attorney DECORO LAW OFFICE, PLLC www.decorolaw.com