Most people think that if you become incapacitated, your spouse or friend will be able to step in your shoes to make financial decisions on your behalf. This is false. If you exclusively hold property or assets, your friend or spouse will have no authority to make any decisions on your behalf without a long court proceeding. Setting up a power of attorney can avoid this. It can designate who exactly will manage your affairs when you are incapable.
What is a Power of Attorney?
A power of attorney grants a designated individual authority to make decisions on your behalf. The authority is given by the “grantor”, to a person who becomes an “attorney-in-fact”. The authority granted to the attorney-in-fact can be broad or narrow, and can be immediate or future. A power of attorney lasts until it ends by its terms, is revoked, or the grantor dies.
Types of Powers of Attorney
There are several characteristics by which a power of attorney is categorized:
Purpose (Financial, Medical, or Guardianship)
There are several purposes that a power of attorney can have. One for guardianship designates who gets to raise your children when you are incapacitated. The medical power of attorney is part of a health care directive, authorizing someone to make decisions on your behalf when you are incapacitated. And the financial power of attorney – what we're concerned with here – authorizes someone to make financial decisions on your behalf. These decisions can include:
- Access to bank accounts and pay bills
- Authority to buy or sell stocks and securities
- Power to manage, buy, or sell real estate
- Make health care decisions
- Authority to run a business
- Right to apply for government benefits on the grantor's behalf
General v. Limited
A general power of attorney allows the attorney-in-fact to make all decisions on the grantor's behalf. A specific power of attorney is limited in scope. For example, if a power of attorney only granted authority to sell a piece of real estate, then it would be limited.
Durable v. Non-Durable
A durable power of attorney is effective even when a person is incapacitated and unable to make decisions for themselves. A non-durable power of attorney ceases to be effective once the person becomes incapacitated. For estate planning purposes, a durable power of attorney is the most common.
Springing v. Immediate
An immediate power of attorney is effective immediately once it is executed. A springing power of attorney is effective upon the happening of some event. For example, if a power of attorney was only effective once a person became incapacitated, then it would be springing.
Termed v. Non-Termed
The authority of a termed power of attorney ends on a specific month, day, and year. The authority of a non-termed power of attorney ends when you die. For estate planning purposes, we are most concerned with the non-termed power of attorney.
Many attorneys merely use the statutory form power of attorney which, while enforceable, is an immediate power of attorney. This means that your attorney-in-fact immediately has control over your finances as soon as you sign the durable financial power of attorney. That's a bit scary – we don't want this. Instead, you should have a springing power of attorney where your attorney-in-fact only has control over your finances when you are incapacitated. We balance this by including language carefully tailored to meet the requirements of your financial institution. This is what Signature Law brings to you.
A power of attorney is about proper planning. Signature Law drafts legal documents that are easy to understand yet specific. This helps protect you and your assets. It is important to us that you and your attorney-in-fact know what authorities and responsibilities have been delegated by the document. If you have questions about or need a power of attorney, please contact us to schedule a free consultation.