Durable Power of Attorney
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Many estate planning clients have heard about a Financial Power of Attorney but are not clear as to why they should have one or how they might benefit from having this legal document. At the outset, it is important to consider, “Who takes care of my financial interests if I become incapacitated and unable to handle my own financial affairs?”
The answer to this question is that without a Financial Power of Attorney (FPOA), a court will typically appoint someone to act as your agent through a guardianship or conservatorship proceeding. This requires that a friend or family member file a petition with the local court seeking guardianship or conservatorship. This friend or family member will be required to gather and submit evidence that shows you have become incapacitated so the court may decide who should be appointed to manage your financial affairs.
Not surprisingly, this process imposes significant burdens on your loved ones, including the costs of hiring a lawyer or law firm, physicians, and possibly others to provide evidence as to your incapacity. It often results not only in emotional distress at a time when your loved ones are already dealing with your illness or injury, but also causes delays in having your affairs properly addressed. At the same time, you have no input on who will be appointed to serve as your agent.
What is the difference between a power of attorney and a durable power of attorney?
The terms “Statutory Durable Power of Attorney” and “Financial Power of Attorney” are often used interchangeably in many jurisdictions, but it’s essential to understand their meanings and implications. It’s important to understand the differences between them, however, in order to make the right decision for your particular circumstances.
A Durable Power of Attorney can be a general document, granting the agent broad authority over financial and legal matters, or it can be limited, conferring specific powers for particular transactions or periods. Unlike the Statutory Durable Power of Attorney, a Durable Power of Attorney does not necessarily need to be created based on statutory guidelines, though it must still comply with the relevant laws and requirements of the jurisdiction in which it is executed.
According to Section 751.00201 of the Texas Estates Code, a person is considered to be “incapacitated” for the purposes of a durable power of attorney if a doctor’s examination finds that they are not able to manage their own finances. The doctor must provide a written statement certifying this finding of incapacity.
A Statutory Durable Power of Attorney (SDPOA) allows you to appoint an individual or organization to act as your agent in legal or financial matters should you become incapacitated or unable to manage your affairs due to illness or injury. This document grants your agent broad powers, such as being able to sell or transfer assets and sign contracts on your behalf. It also remains in effect if you become incapacitated, so it is a good option for those who wish to plan ahead for potential future needs.
A Financial Power of Attorney document gives your agent the authority to handle only your financial matters for a specified period. This can include managing bank accounts, collecting Social Security payments, making investments, paying taxes, and filing insurance claims. Unlike a statutory durable power of attorney, this document does not remain in effect if you become incapacitated.
Choosing between a statutory durable power of attorney and a financial power of attorney depends on your particular situation and goals. If you want someone to be able to manage all aspects of your affairs if you become incapacitated, then a statutory durable power of attorney may be the best option.
On the other hand, if you only need someone to manage your finances for a limited period of time, then a financial power of attorney makes more sense. In either case, it’s important to consult with an experienced legal professional who can help guide you to ensure that the appropriate document is drafted and executed properly.
Statutory Durable Power of Attorney
When it comes to legally protecting the best interests of you and your loved ones, a Statutory Durable Power of Attorney (SDPOA) is an important option to consider. An SDPOA gives another person the authority to act on your behalf in matters involving finances, property, health care, and other decisions if you become incapacitated or are otherwise unable to do so yourself. Here’s what you need to know about establishing an SDPOA.
What Is an SDPOA?
A Statutory Durable Power of Attorney is a legal document that grants someone else (known as the agent or attorney-in-fact) the authority to make financial decisions and manage the affairs of the person creating the power of attorney (known as the principal). The “statutory” aspect means that the powers granted to the agent are defined by statute or law, outlining the specific powers they can exercise. These powers can vary by jurisdiction but typically include managing bank accounts, paying bills, handling investments, managing real estate transactions, and other financial matters.
An SDPOA allows you to appoint a trusted agent to handle important decisions for you should you no longer be able to do this yourself due to illness or disability. Your agent will be empowered to act on your behalf regarding financial transactions, property management, health care decisions, and more.
In many cases, a statutory durable power of attorney remains valid even if the principal becomes incapacitated or unable to make decisions on their own. This feature makes it a valuable tool for long-term planning and ensuring someone can act on your behalf in financial matters if needed.
Who Can Serve as an Agent?
Your agent must be someone you trust implicitly, such as a spouse, close friend, or family member. The best candidate should be comfortable handling legal and financial decisions, as well as acting in your best interest at all times. It is also important that your chosen agent can easily be accessed in case of an emergency.
How Do I Establish an SDPOA?
Establishing an SDPOA is relatively straightforward. First, prepare a document that outlines exactly which powers you are granting your agent. This document must include your name, the names of the people you are appointing as agents and any alternate agents, and specific instructions as to how they may act on your behalf. Next, have the document signed before witnesses and/or a notary public. Finally, make sure to keep your SDPOA documents in a secure place and provide copies to your agents before filing them with your county clerk’s office.
A Statutory Durable Power of Attorney enables you to make sure important decisions are being handled responsibly in the event of incapacitation or disability. Be sure to appoint someone whom you can trust completely and provide them with clear instructions on how they may act on your behalf. With an SDPOA properly established, you can have peace of mind knowing your wishes will be respected even when you cannot perform them yourself.
Financial Power of Attorney (FPOA)
A Financial Power of Attorney is a broader term that encompasses any legal document that confers authority to an agent to act on the principal’s behalf in financial matters. Unlike the Statutory Durable Power of Attorney, a Financial Power of Attorney may not necessarily be governed by specific statutory provisions. Instead, it could be a general power of attorney or a limited power of attorney, depending on the scope of authority granted.
A general power of attorney grants the agent extensive powers to handle various financial transactions and decisions on behalf of the principal. Conversely, a limited power of attorney grants the agent authority over specific financial matters, often for a limited period or a specific purpose.
In summary, the primary difference between the two lies in their legal basis and scope:
- Statutory Durable Power of Attorney is specifically defined and governed by statutes in certain jurisdictions, and its powers are typically focused on financial matters.
- Financial Power of Attorney is a more general term that encompasses any power of attorney related to financial matters, which can be either statutory or non-statutory and may have varying degrees of authority.
Benefits of a Financial Power of Attorney
In contrast, if you have executed a comprehensive and durable Financial Power of Attorney naming your agent and any successor agents, most of these disadvantages can be avoided. Here are some of the common benefits, as identified by our estate planning attorneys, of having this document in place:
Ability to Choose Who Will Act as Your Agent (rather than a court)
If someone has signed a comprehensive and durable Financial Power of Attorney and later becomes incapacitated and unable to make decisions, the agent named can step into the shoes of the incapacitated person and make important financial decisions as provided in the POA.
Avoids Costs and Delays of a Guardianship or Conservatorship
For the minimal upfront cost of having a Financial Power of Attorney prepared by an estate planning lawyer, thousands of dollars can be saved by avoiding legal action. In addition, your named agent can begin handling your financial affairs from the moment you become incapacitated, as that term is defined in your Financial Power of Attorney.
Provides Opportunity to Discuss Your Wishes With Loved Ones
Preparing a Financial Power of Attorney forces you to consider who you trust to handle your financial affairs so you can take the time to speak to those persons about your wishes and expectations. If your chosen agent does not wish to take on the burden of handling your financial affairs, you will have time to consider others to act in this capacity.
Prevents Questions About Your Intent
Many of us have read or heard about protracted litigation over an incapacitated person’s intent. A well-drafted durable Financial Power of Attorney can eliminate the need for loved ones to disagree over your wishes in the event you become incapacitated.
Protects Your Agent From Claims of Financial Abuse
If your named agent, or any successor agents, are also beneficiaries of your estate, the Financial Power of Attorney can allow the agent to make gifts to him or herself or others in order to carry out asset protection planning objectives. Without the power of attorney authorizing this, the agent, often a family member, could be at risk for allegations of financial abuse by others.
When Does My Financial Power of Attorney End?
A durable Financial Power of Attorney automatically ends at your death. It also ends if:
- You revoke it. As long as you are mentally competent, you can revoke your document at any time.
- You get a divorce. In California, your durable power of attorney is automatically terminated if your spouse is your agent and you get a divorce. As a practical matter, it is always wise to make a new power of attorney as soon as you file for divorce.
- A court invalidates your document. It’s rare, but a court may declare your document invalid if it concludes that you were not mentally competent when you signed it, or that you were the victim of fraud or undue influence.
- No agent is available. To avoid this problem you can name an alternate agent in your document.
- As otherwise provided in your POA. Your POA may include other instances in which the document becomes ineffective.
Summary
Taking the time to sign a comprehensive and durable Financial Power of Attorney reduces the burden on loved ones who would otherwise be forced to seek a court’s authority for performing basic tasks, like writing a check or arranging for home health services—all at great expense and delay. Knowing this has been taken care of in advance by an experienced estate planning attorney is of great comfort to families. For more information browse our website or to speak with an experienced estate planning lawyer, contact us today.
