A frequently overlooked part of the estate planning process is deciding who will help you manage your financial affairs if you’re ever incapacitated and unable to manage them yourself. In reality, the likelihood of you needing someone to act on your behalf at some point in time is statistically quite high; accidents happen every day. In order to address the possibility of an eventual incapacitating event, diligent clients (with the help of their estate planning attorney) ensure they have the appropriate documents in place should the need ever arise. Specifically, by executing a Durable Power of Attorney, they have, in advance and with thoughtful consideration, chosen exactly who will help them if or when they need help.
What is a Durable Power of Attorney – An Overview
A Durable Power of Attorney (“DPA”) is a legal document that outlines who will make decisions for you, what decisions that person can make, and when that person can make them.
A Power of Attorney “Agent” is the person or persons you specifically name in your DPA document to act for you if you are ever incapacitated and unable to manage your affairs yourself.
The powers contained in a DPA are generally financial in nature, and usually do not give your named DPA Agent the authority to make any medical or healthcare-related decisions for you. Since we can’t predict what events may transpire in the future, a DPA can and should be quite broad, and drafted to cover a number of different possible scenarios.
This Power of Attorney is “durable” in that it survives a declaration of incapacity. In fact, you can even describe in the document itself what constitutes an incapacity event, or specify who exactly determines whether or not you have the capacity to make decisions (such as your primary care doctor, two licensed physicians, or a panel of family members, for example).
Who should I appoint as my Durable Power of Attorney Agent?
The short answer is: anyone you trust to make legal, business, and financial-related decisions for you.
If you’re married, your spouse is typically listed as your first Agent. This will allow him or her to manage any bank accounts that are in your name alone, or to file your joint-tax return, for example. In addition, it is always advisable to list backup agents as well, especially in the event you and your spouse become incapacitated together, or one of you pre-deceases the other.
Further, a person named as a DPA Agent is under no obligation to act, and may not want to or be able to help you when the time comes (maybe because of their own incapacity). Additionally, an Agent can always resign later on down the road, so having a “next in line” to pick up where your first named Agent left off is always a good idea.
The only real limitation is that a DPA Agent has to be an adult–so your very responsible but not-quite 18 year old child would be a bad choice, at least for now. Keep in mind, however, DPAs are completely modifiable and easily amendable, so when he or she reaches adulthood, you can have your DPA updated accordingly.
When does a POA become effective?
Your Agent usually cannot begin acting on your behalf unless and until there is a formal declaration of incapacity. However, sometimes people chose to make their DPA “immediate”, which means the named Agent can start helping them out upon execution. While this sounds like a really scary thing for some, in the appropriate situation, it is ideal. For example, perhaps an aging parent is starting to need more and more help, and we don’t want to wait until they’re technically “incapacitated” to help them. A few other scenarios where an immediate DPA can be useful is when someone is going out of town for an extended period and would like their Agent to manage their affairs while they are away, or they are going in for a medical procedure and want to ensure they have someone in place that can manage things for them if they end up needing a little extra help while they recover.
How long will my POA last?
Duration: The duration of a DPA can be indefinite, or it can be limited to a specific period of time in advance. Likewise, a DPA can be used long-term or just temporarily. If you are incapacitated for a short time, your Agent can act for you until you regain the capacity to begin acting for yourself once again. If you never regain capacity, your pre-selected Agents can continue caring for you for an unlimited amount of time.
Caveat: Although DPAs are usually indefinite, that doesn’t necessarily mean they will be accepted forever. I advise my clients to revisit and “refresh” their DPA documents every few years. Even if they do not want to change their appointed Agents, it’s nice to get “fresh ink” on the document, which ensures banks and other financial institutions will accept them without hesitation as they reflect the relatively recent wishes of the Principal.
Revocation & Amendment: You are free to revoke your DPA entirely, or you can simply amend it to reflect your current wishes. Things change and relationships are fluid. Obviously if you no longer want a person you had previously named as your DPA Agent handling your affairs, you should update the document to reflect your change of heart. Like I tell my clients: you have to plan for what you know now. So, if you know you do not want your brother managing your affairs, don’t list your brother as an Agent. You can always update your DPA down the road when he gets his act together and you feel confident in his judgment.
Expiration: Finally, DPAs expire at death. Let me repeat that: DPAs expire at death! In my practice, I’ve learned that most people don’t know this, and always look remarkably shocked when they find out. As one of my clients put it, “So you’re telling me that my Power of Attorney expires when I expire?” Yes, that is exactly right.
To put it another way, your named Agent will be able to help you between your incapacity and your death, but not afterward. So, while your Agent can manage your affairs for you because you’re incapacitated, they can’t continue managing those affairs for you upon your death by virtue of being named your DPA Agent.
I Have a Trust – Do I Still Need A DPA?
Yes. You absolutely do. A DPA is designed to work in conjunction with your Trust in that it is used to control assets outside of trust title. Examples of assets outside of your trust that would be managed by a DPA Agent (rather than Successor Trustee) include: managing retirement accounts, paying your debts, applying for government benefits, making support payments, managing your business, etc.
Now this does not mean your DPA Agent and your Successor Trustee have to be different people—in fact, the same person can act for you in both capacities. There are certainly benefits of having the same person in both roles, but there are also practical and logistical implications to consider as well. The best course of action is to sit down with your estate planning attorney and decide what will be best for you and your specific situation.
What if I don’t have a DPA? Then what?
If the time comes and you are no longer able to manage your own financial affairs, but the appropriate planning was not done in advance (i.e., you did not execute a DPA), a conservatorship action will be brought before a court, and a judge will decide who handles your affairs for you. Of course, this will cost you or your loved ones in both time and money—who will foot that bill?; but perhaps even more concerning is the chance that the person the court appoints to manage your affairs is someone you would have never picked yourself. Remember, you’re incapacitated at this point- you will have no meaningful say in the matter without a DPA.
People often think of an Estate Plan as something that will come into effect upon their death; but comprehensive estate planning will also provide guidance in the event of incapacity. A well-crafted DPA can be used to seamlessly transition the financial affairs of the Grantor/Principal into the hands of the people they know and trust, without court intervention, and in accordance with their wishes.
The attorneys at Gehres Law Group, P.C. are pleased to offer a complimentary evaluation to discuss your estate planning needs. Please remember this information is general in nature and does not constitute legal advice. Nothing in this article should be construed as forming an attorney-client relationship. For specific advice concerning your particular situation, consult personally with an estate planning attorney.