What is a Durable Power of Attorney?

By April 22, 2015 No Comments

thetaxhaven on Flickr CartaDurable powers of attorney are not exactly fodder for late night sketch comedy – or even dinner party conversation. They may be dull, but they are essential estate planning documents. And, really, a well-drafted durable power of attorney should be unremarkable if it is effective and used for its intended purposes. Do you really want anything interesting to arise from your durable power of attorney documents? I don’t.

At its core, a durable power of attorney gives another person (the “attorney-in-fact”) the authority to act on behalf of the person signing the document (the “principal”). A power of attorney is considered to be “durable” because it is effective even when the person signing the document later becomes incapacitated. Typically, a durable power of attorney is used only when a person lacks the capacity to make decisions and take actions needed to facilitate financial transactions such as making a mortgage payment, paying a student loan, or transferring funds between accounts.

Durable powers of attorney are especially important for parents of young children, because they allow a parent to nominate a guardian for a child if the child’s parents become incapacitated. Durable powers of attorney can also appoint a person to make short-term or emergency health care and child care decisions on behalf of the principal’s child if the child does not have a parent with capacity to make these decisions.

Durable powers of attorney either become effective immediately when the document is signed, or upon the disability of the principal. Whether you decide to have your power of attorney effective immediately or upon disability depends on your circumstances, as there are strong arguments for both approaches. When a power-of-attorney document is effective upon disability, the attorney-in-fact will need to prove the principal is disabled in order to assume the authority granted in the document. Sometimes, proving incapacity can be burdensome due to medical privacy laws such as HIPPA. However, a durable power of attorney that is effective immediately upon signature runs the risk of the having a rogue attorney-in-fact make unauthorized transactions on the principal’s behalf while the principal still has capacity to act for themselves.  It happens!

Because an attorney-in-fact is usually granted broad access to the principal’s financial resources, the decision of who to appoint in that role should be made with care. Thoughtful consideration is needed to select an attorney-in-fact who will make sound financial decisions and act with integrity when granted unfettered access to your financial resources. However, by thinking through these hard questions now, you can rest easier knowing you decided what is right for you.

Photo credit: thetaxhaven on Flickr

This post is for informational purposes and does not contain or convey legal advice. The information herein should not be used or relied upon in regard to any particular facts or circumstances without first consulting with an attorney.

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