Skip to main content
A Better Partnership

Publications

Oct 2013
23
October 23, 2013

Estate Planning Tip: Should Your Power of Attorney be Effective Immediately?


The durable power of attorney often ends up being the most critically important of all estate planning documents, even more important than wills and trusts. That’s because a large number of people become disabled in their later years and need their agent under durable power of attorney to perform many tasks from paying bills, establishing trusts, moving assets into trusts, rearranging investments to generate more cash or income and making gifts to allow qualification for Veteran’s benefits or Medicaid. A well drafted power of attorney allows the agent to respond to changing circumstances and handle all types of financial and legal matters on a client’s behalf. Despite this, few people understand how a durable power of attorney actually works. 

The first critical issue is whether your durable power of attorney is effective immediately or upon disability.  If it is effective upon disability, it is considered a “springing” power because it springs into effect only if you become disabled. Many people are comfortable with this arrangement because they don’t feel as if anyone should have the power to conduct financial matters for them if they are not disabled. However, the problem with springing powers of attorney is that they can be cumbersome when it becomes time to use them. Before your agent can act, one or two physicians must certify incapacity. This takes time and is often a hassle for your agent. Moreover, it is not unheard of for risk averse financial institutions to decline to recognize the authority of your agent under a springing power of attorney, even if you have a notarized certificate of incapacity from your physician.

Is it dangerous to give your agent power to act immediately? Perhaps. Durable powers of attorney often grant very broad authority that will allow the agent to do almost anything that you could do with your financial affairs. However, if you do not have complete confidence and trust in the person you are naming as agent, rather than delaying the time when their authority becomes effective it is probably best to rethink your choice of agent. If you cannot trust them enough to give them immediate authority then perhaps they should not be named at all.

Of course, everyone’s situation is unique and it is possible to draft for special situations. For example, it is possible to give your spouse immediate authority but only give your secondary agent authority upon certification of incapacity. It is also important to realize that certain extraordinary powers should be specifically granted and will not be assumed to have been granted by a general grant of authority. There may also be state specific requirements in the drafting and execution of a durable power of attorney. For these reasons, it is a good idea to have your power of attorney prepared by your estate planning attorney rather than relying on an internet form.

 

NOTICE. Although we would like to hear from you, we cannot represent you until we know that doing so will not create a conflict of interest. Also, we cannot treat unsolicited information as confidential. Accordingly, please do not send us any information about any matter that may involve you until you receive a written statement from us that we represent you.

By clicking the ‘ACCEPT’ button, you agree that we may review any information you transmit to us. You recognize that our review of your information, even if you submitted it in a good faith effort to retain us, and even if you consider it confidential, does not preclude us from representing another client directly adverse to you, even in a matter where that information could and will be used against you.

Please click the ‘ACCEPT’ button if you understand and accept the foregoing statement and wish to proceed.

ACCEPTCANCEL

Text

+ -

Reset