When drafting a Power of Attorney for Finances, clients often wonder if they should execute a “Durable” power of attorney or a “Springing” power of attorney.
A durable power of attorney means that the ‘agent’ you select can immediately step into your shoes and gain access to your accounts and manage your financial affairs. This power is effective immediately after the POA is signed.
Thus, when one becomes incapacitated, the power of attorney ‘endures’ until the principal is able to regain his or her mental and physical well-being. True, the agent can gain immediate access to financial accounts upon signing but, most of the time, the agent has no interest in doing so right away.
On the other hand, a springing power of attorney means that the agent’s ability to gain access to a principal’s financial assets only goes into effect upon the ‘incapacity’ of the principal and not before. Most people intuitively like the sound of the springing power of attorney.
Before you make a decision as to which type of power of attorney will work best for you, here are some issues to consider.
Usually there is language in a springing power of attorney that details the ‘incapacity’ and how it is determined. Commonly, there is a requirement that one or more doctors certify in writing as to the incapacity. That process can take days, if not weeks to occur. If you have a complicated estate that needs daily or weekly financial attention, the delay could produce some problems.
At the same time, the definition of ‘incapacity’ may come into play. If you have a springing power of attorney, incapacity may have to be spelled out in great detail. Even so, there still may be glitches. If there is any ambiguity, argument or confusion, your agent may be hamstrung. A ripple effect of this is that your agent may not be able to access your medial information due to HIPAA/Privacy concerns. All of this may head to a court hearing to sort the situation out. Thus, a springing power of attorney may have to be very carefully and painstakingly drafted.
The durable power of attorney, of course, gives your agent power as soon as you sign it. In some cases, this can be a ‘license to steal’ for some agents. That is why it is of paramount importance to choose someone as your agent who you completely trust. Statistics show that most incidents of abuse of a financial power of attorney actually take place after the principal becomes incapacitated, however, it has been known to happen beforehand. Like any legal document, a durable power of attorney can be drafted with safeguards and with limited or extensive powers.
A principal can always tell an agent that he or she is the agent for a durable power of attorney but keep the document in a safe place where the agent can only access it in the event of a true incapacity. It is also a good idea to have written a ‘playbook’ for the agent to follow that gives information as to what financial matters need to be addressed in an emergency, as well as information regarding banks and accounts.
Frequently, people give their agent broad power to handle all of their finances. However, you can give your agent as much or as little power as you wish. You may want to give your agent authority to do some or all of the following: use your assets to pay your everyday expenses and those of your family; buy, sell, maintain, pay taxes on, and mortgage real estate and other property; collect Social Security, Medicare, or other government benefits; invest your money in stocks, bonds, and mutual funds; handle transactions with banks and other financial institutions; buy and sell insurance policies and annuities for you; file and pay your taxes; operate your small business; claim property you inherit or are otherwise entitled to; transfer property to a trust you’ve already created; hire someone to represent you in court, and manage your retirement accounts.
The agent is required to act in your best interests, maintain accurate records, keep your property separate from his or hers, and avoid conflicts of interest.
It is always a wise idea to consult your experienced estate planning attorney before you draft a power of attorney so you can discuss, in-depth, the type of POA as well as the scope of authority given to the agent.