When most people think of estate planning they typically think wills, trusts and death. However, the actuality is that one of the major focuses of good estate planning is for incapacity during a client’s lifetime. I take a very educational approach to my consultations and I am always pleased when we reach the end of a planning meeting and I hear one of my clients say they truly understand what documents we are drafting for them and why. One of these vital documents is a Financial Power of Attorney.
In general, a power of attorney is an instrument by which one person (the principal) grants to another (the agent) the power to perform certain acts on his or her behalf. A Financial Power of Attorney in particular grants authority to a designated agent to manage the principal’s finances and/or property on his or her behalf. The principal can grant one or more specific powers or grant the agent all of the powers listed in the statutory form.
In addition, the principal can elect to have the power of attorney effective immediately upon signing it or only upon the principal’s future incapacity. If the instrument is drafted to be effective immediately, the agent may act for the principal regardless of whether the principal has an incapacity. This type of instrument is often done when the principal cannot be present for a particular transaction such as a spouse that is out of town during a real estate closing. More often however, clients prefer a “springing” power of attorney which “springs” into effect only at the time of a certain event, such as incapacity. A determination of incapacity must be certified to by a physician.
One common misunderstanding about power of attorney instruments is about when the agent’s power comes to an end. The agent’s power always ends upon the death of the principal. It can also end if (i) the principal revokes the instrument or (ii) the agent and principal were married and get divorced or (iii) a court invalidates the instrument.
In cases of incapacity, a Financial Power of Attorney can avoid having to participate in a time consuming and costly court proceeding. For many situations it truly becomes an indispensable document to have available.
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