What is a Power of Attorney?
A Power of Attorney is a legal document that gives someone the authority to act on your behalf. Even though it could be used for other purposes, it is one of the documents that a person may execute as part of an estate plan. The person giving the authority is the principal. The person who has the ability to act on behalf of the principal is the agent or attorney in fact. A power of attorney allows your attorney in fact to act on your behalf with the same authority as if you were performing the act yourself.
You decide how much authority you give your attorney in fact. You can execute a power of attorney in order to have someone perform a specific action for you. For example, let’s say you are selling your home and moving out of state. If you have already moved and do not wish to return for the closing, you can give someone a power of attorney to execute the documents at the closing so you do not have to appear. Once the closing takes place, the power of attorney is no longer valid.
As part of your estate plan, you must consider what to do if you can no longer handle your affairs due to a physical or mental impairment. You can use a power of attorney to grant your attorney in fact broad powers on a continuing basis. Some of the things he or she can handle for you:
· real estate transactions;
· banking transactions;
· insurance transactions;
· transactions involving benefits from governmental programs or civil or military service;
· tax matters
The document can be tailored so you can give as many or as few powers to a person as you wish. A big advantage of having a power of attorney is that you get to decide who will handle your affairs if you can no longer do so.
What if you cannot handle your affairs and you have no power of attorney in place? Someone would have to petition the court to be appointed your guardian. The petitioner would have to present evidence as to why you need a guardian and why they should be appointed. The court will appoint someone to investigate what the petitioner claims in your petition. If the court feels the petitioner cannot handle all of the responsibilities, a co-guardian may be appointed or the petition may be denied. If appointed, your guardian would have to file an accounting with the court every fiscal quarter. A bond may have to be posted. All of this is very time consuming and expensive and unnecessary especially if you wanted the petitioner to be your guardian in the first place.
There are different types of powers of attorney. The first type is a power of attorney that takes effect as soon as you sign it. A non-durable power of attorney is in effect from the time you sign the document until you can no longer make decisions for yourself. A durable power of attorney gives your attorney in fact the right to act on your behalf even if you are no longer able to make decisions for yourself. A durable power of attorney eliminates the need to have a guardian appointed by the court.
Another type of power of attorney is called a springing power of attorney because it “springs” into action if an event happens such as a sickness. A springing power of attorney is generally not recommended because you would have to prove the triggering event happened in order for your attorney in fact to be able to act.
As part of your estate plan, you may be required to transfer your assets out of your name. Your agent must have the authority to do this. A major gifts rider is an addendum that needs to be filled out along with your power of attorney to allow your attorney in fact to transfer your assets You can limit the amount your attorney in fact is allowed to gift.
Generally, an agent is not allowed to gift money or property to himself or herself. This is called self-dealing and is a breach of his or her fiduciary duties. If you want a beneficiary to be your attorney in fact like a spouse or child, you can give them the authority to self-deal in a major gifts rider.
Once an attorney in fact is appointed, he or she can act on any power you give them as if your property was his or her own. You must completely trust your attorney in fact; otherwise, you put your assets at risk of being taken from you. A principal may appoint a monitor who has the right to request records of all transactions, receipts, and disbursements made by the attorney in fact on behalf of the principal. The monitor can also receive records from third parties. Although a monitor can provide some oversight over the attorney in fact’s activities, he or she is no substitute for a trustworthy agent.
A power of attorney is not a substitute for a Will and a Will is not a substitute for a power of attorney. A power of attorney is in effect only while you are alive and is no longer valid when you die. A Will only becomes effective when you die and is not controlling while you are alive. Both documents should be considered as part of a comprehensive estate plan. Although you could create a power of attorney without an attorney, the general form may not adequately address your specific needs and any mistakes made could have lasting, devastating consequences. It is a powerful document that you should not try to draft without the assistance of an experienced attorney.
The preceding is for factual information only and is not intended to be legal advice. You should never attempt to address any of the issues raised here without the assistance of an attorney.