For most of us, a Durable Power of Attorney is one of the most important estate planning documents that we will ever put in place. Whereas a Last Will and Testament addresses what will happen to our estates and assets after we have died, a Durable Power of Attorney addresses what will happen in the event that we should become incapacitated during our own lifetimes and therefore become unable to make both medical and financial decisions for ourselves. A Durable Power of Attorney allows us to appoint both primary and successor “Agents” or “Attorneys-in-Fact” who can step in and act on our behalf should we become incapacitated. Without a Durable Power of Attorney, no one would be able to step in and simply represent you and make decisions on your behalf. Instead, someone would have to seek to be appointed as your conservator or guardian by the court. That court process not only takes time and costs money, but, at the end of day, a judge may not choose the person you would have preferred. In addition, under a guardianship or conservatorship, your representative may have to seek court permission to take planning steps that he or she could otherwise simply implement immediatly under a Durable Power of Attorney. A Durable Power of Attorney may be limited or general in its scope and nature.
A limited Durable Power of Attorney may give someone the right to sign a deed to property on a day when you are out of town or to conduct a banking transaction on your behalf. A general Durable Power of Attorney is much more comprehensive in nature and will allow your Agent or Attorney-in-Fact to do anything on your behalf that you would otherwise be required to give consent to. A Durable Power of Attorney may also be either current or take effect immediately upon their execution, even if the understanding is that they will not be used until and unless the grantor becomes incapacitated. However, the document can also be written so that it does not become effective until such incapacity occurs. In such cases, it is very important that the standard for determining incapacity and triggering the power of attorney be clearly laid out in the document itself.
However, one thing to keep in mind is that as an attorney I have seen and am aware that a number of my clients have reported to me that they have experienced increasing difficulty in getting banks or other financial institutions to recognize the authority of an agent under a Durable Power of Attorney. A certain amount of caution on the part of financial institutions is understandable: When someone steps forward claiming to represent the account holder, the financial institution wants to verify that the attorney-in-fact indeed has the authority to act for the principal. Still, some institutions go overboard, for example requiring that the attorney-in-fact indemnify them against any loss. Many banks or other financial institutions have their own standard power of attorney forms. To avoid problems, you may want to execute such forms offered by the institutions with which you have accounts. In addition, any attorneys counsel their clients to create Revocable Living Trusts in part to avoid this sort of problem with powers of attorney.
While you should seriously consider executing a durable power of attorney, if you do not have someone you trust to appoint it may be more appropriate to have the probate court looking over the shoulder of the person who is handling your affairs through a guardianship or conservatorship. In that case, you may execute a limited durable power of attorney simply nominating the person you want to serve as your conservator or guardian. Most states require the court to respect your nomination “except for good cause or disqualification.”
Remember, a well drafted Durable Power of Attorney, like Will and Living Will, is an extremely important element of a proper and well thought out estate plan.