Why You Need a Durable Power of AttorneyEstate Matters
This last week, I met with one of my senior clients and her son for our regular financial review. After walking through her portfolio and discussing the new tax laws, we talked about the need for a trusted backup (her son) to be authorized to manage her financial affairs if she became unable to do so.
Enter the Durable Power of Attorney (DPOA)
A DPOA is a legal document where you appoint someone to act on your behalf when you’re alive but unable to manage your own business affairs. The person you appoint is known as your attorney-in-fact and it’s usually a good idea to also appoint a successor in case the first person is unable to follow-through.
With a DPOA, your attorney-in-fact doesn’t take over unless a doctor has certified that you’re incapacitated or incapable. The arrangement is “durable” in the sense that, once activated, it continues until you either regain ability to manage your affairs or you die.
Sometimes at this point people think: “Larry, I’ve already taken care of that in my Will.” No you haven’t. Your Will speaks on your behalf only once you’ve died. It has no power while you’re still alive.
So imagine this scenario…you’re driving along and some guy with no brains and no brakes takes you out in an intersection. You cheated death but are in a coma in the hospital. Since you’re still alive, your Will is of no effect. And without a DPOA, your loved ones are powerless to deal with financial accounts and assets that are titled in your name only (for example, IRAs, 401(k), life insurance, so on).
Without a DPOA, anyone acting on your behalf will have the hassle, delay, and expense of first getting court approval to manage your affairs. And therein lies the rub: you need a DPOA in place now. My senior client smartly observed “it’s kind of like insurance, there if you need it.”
There are different types of Powers of Attorney and sometimes the same POA might go by different names. But for further clarity, let’s contrast the DPOA with some other types.
General Power of Attorney
This is typically a comprehensive appointment for business affairs, but you appoint someone even though you’re not incapacitated. The arrangement continues until you rescind it, become incapacitated, or die.
Limited Power of Attorney
In this instance, you’re limiting the authorization to a one-time financial transaction or to a specific ongoing business purpose. For example, clients who hire me to discretionarily manage their investment portfolios grant a limited power of attorney to SecondHalf to direct their investments without first discussing portfolio changes with them.
Healthcare Power of Attorney
With this, you’re appointing someone to make medically-related decisions on your behalf when you’re unable to do so.
How do you get a DPOA document?
The safest way is to have an estate planning attorney draft it as part of your estate package. I tend to think of the basic estate documents that most everyone needs as a triad: (1) Will, (2) Durable POA, and (3) Advance Directive/Healthcare POA. Some folks also need additional specialized estate planning, including the use of trusts.
If you already have the other estate documents, have a straightforward situation, and know what you’re doing, then a do-it-yourself legal service like LegalZoom may be appropriate to help you draft your DPOA.
Finally, right after I decided to blog on this, an article on POAs for college students by Meredith Murphy of the law firm Smith Amundsen came across my feed. This is pretty much on nobody's radar. Check it out: Are Your Kids Heading off to College? Consider Setting Up A Power of Attorney
Any other questions about power of attorney? We're here to help!