A Durable Power of Attorney is part of every good estate plan. Although it is a powerful document, it can be a life saver in a situation in which you need someone to manage your affairs. But what is Durable Power of Attorney? Below is an explanation of the document and how it works.
- The Principal is the person establishing the Durable Power of Attorney (DPOA).
- The Attorney-in-Fact (AIF) or Agent is the person being named to act on behalf of the Principal.
- A Power of Attorney is durable if the power granted to the AIF lasts beyond the mental incapacity of the Principal. Without a DPOA, the only way for a family member to manage finances for an incapacitated person is by Conservatorship.
- Conservatorship is a legal process in the probate court by which a judge declares a person to be incapacitated and names a conservator to manage all of his or her finances. In a court proceeding, nearly anyone can be named your conservator. This includes a court-appointed attorney or a child whom you would not wish to have control of your finances.
What is Durable Power of Attorney and What does it Do?
A Durable Power of Attorney is a legal document in which the Principal names an AIF or Agent to make financial decisions for him or her. In Massachusetts, we do not have a standard statutory form for a DPOA. A DPOA should be drafted by an attorney and customized for the Principal.
Typically, a DPOA gives the AIF a wide range of powers to make decisions for the Principal:
- power to sign checks and do banking
- sell assets (including the home)
- invest assets
- manage a business
- manage life insurance
- pay taxes
- pick up the mail
- make gifts
- sign contracts, etc.
We prefer to keep the range of powers wide so that the AIF has the flexibility to do anything necessary for the Principal. However, the powers of the AIF can be limited in any way. One common limitation is to prohibit (or limit) the AIF from making gifts of the Principal’s money to anyone other than a spouse.
When Does a Durable Power of Attorney Take Effect?
We usually draft a DPOA to take effect immediately rather than to be triggered by a declaration of incapacity. The main reason to allow use of the DPOA right away is that many Principals need the assistance of an AIF even though they have mental capacity. For example, a Principal who is sick in a hospital or in a rehabilitation facility after an operation may want his or her AIF to help out by collecting the mail, paying the bills, making phone calls, running errands, doing banking, etc.
A Principal does have the option of making the DPOA a “springing” power. This means that the document only springs to life when the Principal is determined to be mentally incapacitated by a doctor. We find that the ‘springing’ option only limits the AIF’s ability to help the Principal. It does not prohibit any type of wrong-doing by the AIF. Instead, the wrong-doing will simply occur after the Principal is incapacitated.
Is a Durable Power of Attorney It Safe?
Many of our clients worry about signing a DPOA with immediate powers only to have the AIF start taking control of all the finances right away. If this were to happen, a competent Principal can simply revoke the DPOA and notify all his or her banks and financial institutions. At that time, the power of the AIF will cease and the AIF will no longer have any control.
Can Durable Power of Attorney Be Used Against Me?
You may have heard or read about terrible situations in which a person with power under a DPOA steals from the Principal or otherwise mis-uses the Principal’s funds. In truth, this situation is not very common. Most families work honestly and well together.
The best protection from misuse of a DPOA is to name a person you really trust to do the job. The tricky situations arise when the AIF and the Principal have different opinions of what constitutes misuse. Occasionally a well-meaning child acts, in his or her capacity as an AIF, in a manner which may be against the wishes of his or her parent. Often the child means well. He or she truly believes he or she is acting in the parent’s best interest. Sometimes the situation can be resolved by a family meeting. If a meeting does not resolve the situation, the Principal, or someone on his or her behalf, may need to contact an attorney and revoke the DPOA.
Another common situation is when there are multiple children in a family and one child has “taken control” of mom or dad’s finances using a DPOA. Often the DPOA was freely signed by the parent. The other children, however, may feel strongly that the AIF is misusing mom or dad’s money. Again, sometimes you can resolve the situation with a family meeting, but an attorney may need to be involved.
What Happens Without a Durable Power of Attorney?
When there is no DPOA, the family usually has a crisis. Often Mom or Dad will have an emergency and go into the hospital and temporarily lose capacity. The children need access to the finances and have no way to do it. Bills go unpaid while the children apply for conservatorship over the parent. The conservatorship process is expensive and time consuming.
So what is Durable Power of Attorney? A Durable Power of Attorney is an important tool for you to maintain control over your finances after incapacity. The document can save thousands of dollars for the family, and avoid a crisis.