By Stacey L. Worthy, Esq.
Most people prefer not to think about growing older or becoming incapacitated. The thought of losing the ability to properly manage your own affairs can be even scarier. One way to remove some of the fear and uncertainty is to have a durable power of attorney for finances..
When executing a durable power of attorney, you should take into account various considerations. This article provides a brief overview of some of those considerations.
What a DPOA Is & Why You Should Have One:
A power of attorney for finances is a document in which you authorize another person, your agent, to take actions on your behalf. A nondurable power of attorney is typically used for limited transactions, such as if you plan to travel for a short time and wish to have someone take care of your bills while you are away from home. In contrast, a durable power of attorney (“DPOA”) allows your authorized agent to take actions on your behalf on a long term basis, and in particular, after you have become incapacitated and are unable to make sound decisions for yourself. By executing a proper DPOA, you can choose who you want to manage your affairs rather than leaving that decision up to a court. More importantly, you can avoid putting your loved ones through a court proceeding in which they have to ask the court for such authority.
Whom to Choose:
A DPOA creates a principal-agent relationship in which your agent has broad access to your financial assets. Although a DPOA has many advantages, you are also potentially giving someone the opportunity to mismanage or misappropriate your money. Therefore, you must find a trusted person, who is at least 18 years old, and is competent. It can be family member or friend, but should be someone whom you trust to manage your financial affairs with the same knowledge and skills as you would personally.
Becoming an agent is a big responsibility. Be sure that you inform your agent that you are considering appointing that person and obtain his permission before you execute your power of attorney. Additionally, you should pick an alternative agent just in case your first choice becomes incapacitated or unable to act as your agent later on.
When Your DPOA Takes Effect:
You have two options. You may execute a “standing” DPOA, which takes effect as soon as you sign it. With a standing DPOA, you do not lose your rights to manage your estate. Both you and your agent have the authority to manage your affairs concurrently. Alternatively, you may execute a “springing” DPOA, which takes effect once one or more doctors certify that you have become incapacitated. Although a springing power of attorney allows you to maintain sole control over your affairs unless and until you become incapacitated, many people prefer a standing DPOA because it avoids unnecessary delays.
Your DPOA will become a valid, enforceable document upon proper execution. Proper execution depends on the laws of your state, but typically requires the signature of a notary public and sometimes witnesses. You do not need to file the power of attorney with your local county clerk. Be sure to provide your agent with the original so that he may show it to banks and other institutions, when needed, in order to prove that he has proper authority. Keep a copy for yourself stored in a safe place.
What Powers Does Your Agent Have:
You can give your agent as little or as much power as you want based on the language you choose to use on the DPOA. Typical grants of power include the ability to use your assets to pay everyday expenses for you and your family; buying, selling, and maintaining real and personal property; investing your money; handling transactions with banks and other financial institutions; filing and paying your taxes; hiring someone to represent you in court; and managing your retirement accounts.
If you believe that your agent is misusing or abusing the authority granted to him, you can revoke your power of attorney and, depending on the severity, file a lawsuit.
When a DPOA Ends:
A DPOA automatically ends upon your death. Most states will not allow you to give your agent authority to conduct your affairs, such as paying your debts, making funeral or burial arrangements, or transferring your assets to people who inherit them, after your death. For those reasons and others, it is important to also have a Will in place.
A DPOA also ends when you revoke it. You can change your mind and revoke the document at any point as long as you are still mentally competent. In such a situation, you should send your agent a letter instructing him that the DPOA has been revoked. As soon as he receives notice, the revocation becomes effective.
In some states, if you name your former spouse as your agent, your DPOA is revoked upon divorce. Seek advice from an attorney to be sure. Regardless, you should amend your DPOA upon divorce to clarify whether or not you still wish to have your spouse act as your agent in light of such events.
In rare instances, a DPOA can be revoked if a court invalidates it, although most courts are unwilling to do so. Additionally, a DPOA can be revoked if the named agent is not available to serve as such, which is why you should always name an alternative agent as well.
How To Obtain Your Own DPOA:
If you are interested in obtaining your own DPOA or have questions, please contact an attorney at DCBA Law & Policy at (202) 644-8525.