What is a Durable Power of Attorney and why is it important?
Most estate plans consist of a revocable or irrevocable trust (type varies based on needs and goals), a will, an advance health care directive, and what’s called a durable power of attorney for finances and property management. For an explanation of the main difference between a will and trust and why both are generally needed, see Planning for Young Families – Need a Will, a Trust, or both?. Here, I will explain in brief terms what a durable power of attorney for finances and property management is, and why it is necessary.
Let’s say husband and wife Jack and Jill are driving down Interstate 5 talking about how well Jack’s general contracting business is doing when – BAM – out of nowhere a semi truck rolls in front of them forcing them off the road and into the center divider. Both survive the crash, but Jack is rushed to the hospital due to a severe head injury. In turns out that Jack is in a coma with a strong chance of coming out of it. But Jill doesn’t have access to Jack’s business accounts. How is she going to keep the business running until he recovers? The answer: a durable power of attorney for finances and property management.
A durable power of attorney allows your spouse (or a person you trust) to handle legal and financial affairs for you as your designated agent (also known as an attorney-in-fact). Without a power of attorney in place, if you become incapacitated, there may not be anyone with authority to make financial decisions on your behalf without a court proceeding. If Jack and Jill had executed a durable power of attorney, Jill could easily step in and manage his business affairs.
A durable power of attorney can be customized to give your designated agent powers over only specific things if so desired (for example, if you don’t want to give your agent the power to buy and sell property on your behalf, you can indicate that preference). You might be asking yourself what the word “durable” means in this context. The word “durable” simply means that the power of attorney you have granted to your designated agent continues to be effective while you are incapacitated.
Although a durable power of attorney is used primarily in the event of someone’s incapacity, it is effective immediately once it is signed. So in Jack and Jill’s case, she can immediately make use of her power of attorney – there is no need to prove that Jack is incapacitated before she can act under her power of attorney.
It is also important to note that a durable power of attorney is automatically cancelled at your death. The person that manages your affairs after you die if you have executed a valid estate plan is either your designated trustee or executor or both. Also, keep in mind that if your spouse is unwilling or unable to serve as your agent under the power of attorney, you will want to name someone you trust in their place. In this event, however, it is generally recommended that you indicate that this person’s authority commence only in the event that you become incapacitated as opposed to being effective when executed.
It's always best to plan for the future. Feel free to contact us at (805) 668-4688 if you would like to prepare an estate plan, including a durable power of attorney.
This article is not exhaustive. It merely discusses general principles pertaining to estate planning. The information contained in this article is for general guidance on matters of interest only. The application and impact of laws can vary widely based on the specific facts involved. Accordingly, the information in this article is provided with the understanding that the author and publisher is not herein engaged in rendering legal advice. As such, it should not be used as a substitute for consultation with an attorney. Before making any decision or taking any action, you should consult a licensed attorney.