BY JIM SCHLEIFFARTH, ESQ.*
A general durable power of attorney is a key part of estate planning. Wills and trusts are usually the first things that come to mind as an individual considers their estate plan or potential estate plan, but the importance of having thorough and detailed power attorney documents cannot be overstated. Life circumstances may place an individual in a position (or location) where they are unable to make or execute key business, personal, legal or financial decisions for themselves and a power of attorney should squarely addresses such circumstances.
1. What does it do?
A general durable power of attorney grants a named individual (called the “attorney-in-fact” or “agent”) the authority to act on your behalf with respect to whatever matters are designated in the document. This in turn means that the document needs to be clear, concise and carefully crafted to meet your needs. In short, a general durable power of attorney is about your ability to have your property, legal affairs, business dealings and financial matters handled effectively, conveniently and quickly in the event of difficult or unforeseen personal circumstances. Without a power of attorney, if you become mentally incapacitated, someone would have to seek the appropriate determination through a court process to be granted authority to make these types of decisions. In addition to the obvious timeliness and convenience problems of not having a power of attorney, the door would also remain open to disputes regarding your capacity and ability to make your own decisions. In the event of any question as to your whereabouts, further complications would also be anticipated.
2. “Immediate” vs. “Springing”
There are two fundamentally different types of power of attorney documents: (1) an “immediate” power of attorney, and (2) a “springing” power of attorney. An “immediate” power of attorney grants authority to the agent immediately upon your signing of the document. In other words, if you sign an immediate power of attorney, you are giving someone immediate authority to act on your behalf. A “springing” power of attorney grants authority that only becomes effective if you are shown to be mentally incapacity (unable to manage your own affairs)–which would typically be accomplished by a signed certification from a physician.
3. Limited Scope vs. Broad Scope; What should be included?
A power of attorney can be prepared in such a way so as to be as narrow or as broad as you would like. For example, an individual could sign a power of attorney granting to someone else authority to manage one particular piece of property for a limited period of time. Conversely, one could prepare a power of attorney than it is very broad, granting the named agent wide-ranging authority to handle various types of matters. It could be intended to last until the death of the declarant. The possibilities of the breadth and scope of powers given in this type of document (whether narrow or broad) are nearly endless. In short, a power of attorney should be prepared so to reflect and effectuate your wishes within the parameters you want in place.
For many clients, it makes sense to have a very broad-ranging power of attorney. When considering the potential of, at some future point, becoming mentally incapacitated, having a thorough and broad power of attorney can go a long way to protecting assets, family members and related estate planning. The scope of potential powers to be included usually includes banking, taxes, business matters, estate planning, safe deposit box access, investment, trusts, gifting, personal care and various other matters.
4. What does “durable” mean anyway?
The term “durable” when applied to a power of attorney, simply means that it continues to be effective and binding even after the person signing it has become mentally incapacitated. There are some instances in which someone might prepare a non-durable power of attorney (which would terminate when the person giving the authority loses mental competence) but in the context of estate planning, it is almost always preferable to have a “durable” power of attorney.
5. Reducing Potential Risk
A properly prepared and implemented power of attorney should consider and reduce potential risks to the individual and their family. Of course, appointing the “right” person as an agent is key. Characteristics such as trustworthiness, honesty, aptitude, experience and loyalty are important to consider. However, the manner in which a power of attorney document is prepared can also
significantly reduce potential risks. For example, it may be wise to exclude certain more “sensitive” powers from a power of attorney (such as the ability to revise estate planning or beneficiary designations). Additional precautionary steps can be taken by naming co-agents or requiring notice to an additional individual. A (non-immediate) “springing” power of attorney also affords some risk reduction.
Summary
A power of attorney is a critical component of any estate plan. Regardless of income, wealth or family dynamics, I recommend a power of attorney for nearly every client. The ability to craft these documents to meet the unique needs and expectations of an individual, coupled with the important role it would play in an emergency or amid deteriorating health make it irreplaceable.
*Jim Schleiffarth practices in the area of estate planning for individuals and families. Mr. Schleiffarth’s practice emphasizes superior client service, straightforward legal counsel and reasonable fees. Schleiffarth Law Firm represents estate planning clients of all income and wealth levels.
This article is for informational purposes only and should not be construed as legal advice with respect to any particular circumstance or life and estate plan. For additional information, please contact Jim Schleiffarth, Schleiffarth Law Firm LLC, St. Louis, MO, (314) 315-4117, jks@sch-law.com.