Trusts can often be the companion piece to a will in your estate plan, but since the topic of trusts can be so broad, there will be comments posted on them at a later time. Today, I want to talk about durable powers of attorney. In its simplest form, a power of attorney is a document in which you (the principal) designate to an agent (the attorney-in-fact) the power to handle and manage affairs in the principal’s name and stead. The attorney-in-fact is a fiduciary, meaning that when he or she acts in that capacity, he or she is charged with acting not in his or her own best interest, but rather in the best interests of the principal. When the attorney-in-fact’s actions are in opposition to the best interests of the principal, the attorney-in-fact is breaching his or her fiduciary duty to the principal, and may be held liable for his or her actions.
Powers of attorney (POA) can be limited or specific, general or durable. In estate planning, we are typically dealing with general durable POA, meaning the powers conveyed are very broad (general), and the POA does not terminate when the principal becomes incompetent or loses capacity (durable).
Absent language that the POA is ‘durable’ or ‘shall survive my subsequent incapacity’, a POA is terminated or becomes void upon 1) revocation by the principal; 2) the principal’s death; or 3) the principal’s incompetency or lack of capacity. A durable POA can still be revoked by the principal, and also becomes invalid at the principal’s death, but a durable POA remains effective even if the principal loses capacity. This can be very important when the principal’s day-to-day affairs (like simply paying the bills) need to be addressed.
Two other comments on durable POAs: First, the powers designated to the attorney-in-fact are often very broad and wide-ranging so it is very important for you to understand the breadth and scope of the authority you are giving. Some durable POAs include language allowing the attorney-in-fact to make gifts, create trusts, or even change beneficiary designations. This is an area that can be easily be abused by the attorney-in-fact which is one reason why the choice you make is so important. Second, before a third party (like a bank or broker) will rely on a durable POA or allow the attorney-in-fact to act, the durable POA will need to be recorded in the Register of Deeds of the county where the principal resides, and possibly in any other county where the principal owns property. This requirement puts other third parties on notice that the attorney-in-fact has the legal right to act in the principal’s name. However, once a durable POA is recorded, there are specific statutory requirements that have to be met in order to revoke or change the POA which include giving notice to the attorney-in-fact being removed, as well as recording a revocation. Because of these extra steps, it is sometimes advisable to wait to record your durable POA until it is necessary, i.e. when the principal can no longer act in his or her own name. This is permitted, and recording a durable POA even after the principal has become incompetent or lost capacity is acceptable. It should be noted that if the principal does suffer incapacity and the original POA cannot be located, the principal would no longer have the ability to create a new document. The balancing of the revocation process for a recorded POA vs. the possibility of losing an original document and the principal no longer have the capacity to execute a new document must be weighed when the question to record or not to record is addressed.
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