Durable Powers of attorney are an essential ingredient in a
complete estate plan, which allow for continued financial management in the
event of incapacity. Under a durable power of attorney, an attorney in fact
makes financial decisions on behalf of the principal. The attorney in fact can
be given broad and sweeping powers. Conversely, powers granted by a durable
power of attorney can be limited to particular assets or powers. Accordingly,
the level of control given to the attorney in fact should reflect the
particular requirements of the estate as well as the principal's comfort with a
broad grant of authority. In this article, the author teaches three lessons on
effective execution and implementation of durable powers of attorney.
First Lesson: Why would I Need One Now?
The legality of durable powers of attorney stems from the
law of agency. Under agency law principals, an individual with capacity may
give an agent powers-to contract, to represent the principal or to revoke or
amend a trust, for instance. In the case of a non-durable power, the agency
terminates upon the principal's incapacity. Durable powers survive incapacity,
but the principal must have capacity at the time of execution in order to
effect a valid power. Accordingly,
executing a durable power of attorney for financial management should be done
prior to incapacity.
Waiting until one becomes unable to coherently express one's
wishes with regards to financial management decisions is too late, and a
court-appointed conservatorship may become necessary. What about the successor
trustee designated in my trust, or the executor of my will? Would they be able
to step in? Since the principal does not die at incapacity, only an attorney in
fact designated under a properly executed power of attorney may step in to make
financial management decisions. A last-minute durable power of attorney
executed during incapacity would not survive a court challenge, however
expensive or damaging the result.
Second Lesson: Consider making the Power Immediately
Effective
Often, unwary estate planners will execute "springing durable
powers of attorney," which only become effective upon the incapacity of
the principal. Incapacity is determined according to a test set out in the
power, such as a determination made by a medical doctor or a court rendered
decision. But who wants to go through the expense, difficulty, and uncertainty
of initiating a legal procedure to determine incapacity? Isn't one of the goals
of estate planning to prevent unnecessary expense and delay? Moreover, doctors
frequently hesitate to make determinations of incapacity because of liability
they may face.
In most cases, a better strategy would be to execute an
immediately effective durable power of attorney, which gives an attorney in
fact the power to make decisions on behalf of the principal without any finding
of incapacity. Many are fearful of an immediately effective power of attorney,
reasoning that no one should be given such power over their financial affairs
unless they are totally incompetent. If they have such a lack of trust for the
attorney in fact, why are they executing a power of attorney in the first
place? One would think that even more trust would be required when the
principal is incompetent and has little influence over the attorney in fact.
Finally, simple measures can be taken to avoid disasters before incapacity.
Consider sealing a copy of the durable power of attorney in an envelope labeled
"do not open until my incapacity." In addition to oral instructions,
this can help to avoid the scenario of a run-away attorney in fact who uses the
power of attorney to access financial accounts before incapacity.
Third Lesson: What powers should the Attorney-in-Fact be
given?
The powers given to an attorney in fact depend upon the
principal's desires and the particular concerns that stem from the types of
assets held. The durable power of attorney should be coordinated with the will,
trust and advance health care directive to ensure that they do not contradict
each other. Namely, should the attorney in fact have the power to create
trusts? To rescind or amend existing trusts? Should the attorney in fact have a
power to make gifts to himself or to others? These powers can help ensure that
preparation for long term care (medical) or tax planning can take place even
after incapacity. Before executing a
power of attorney, individuals should be fully informed of the powers that they
are granting, and the possible consequences of such sweeping grants of power.
In all cases, it's best to consult with an attorney who can advise on specific
risks.
Conclusion
Durable Powers of Attorney are one of the five essential
documents in estate planning discussed in this article series. Unlike a will or
trust, which mostly deals with decisions that are made upon one's death, the
durable power of attorney deals with life-time financial management and estate
planning questions. Individuals should be aware of the risk in waiting to
execute the power of attorney; the hazards of "springing" powers; the
range of powers that can be given to the attorney in fact; and the risks
associated with a sweeping grant of authority to the attorney in fact. --Visit https://legalizationservicecentre.ca/
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