Every adult should have a Durable Power of Attorney. A “Power of Attorney” is a legal document in which one person gives another person the power to act for him, including the power to sign papers for him. The person who is giving the power is called the “principal.” The person who is getting the power is called the “Attorney-in-Fact” or “agent.” “Attorney-in-Fact” doesn’t mean the person who is getting the power has to be a lawyer. Any adult such as your husband, wife, son or daughter, brother or sister, or friend can be your Attorney-in-Fact. A “General Power of Attorney” gives broad powers to the Attorney-in-Fact, such as the power to buy and sell real estate, open and close bank accounts, sign checks, sign contracts, and in general, do anything the principal can do. A “Special Power of Attorney” gives the power to do only one or more specific things, such as the power to buy or sell a certain piece of real estate for the principal.
A “Durable” Power of Attorney is one which will continue to work even if the principal becomes disabled or incapacitated (unable to handle his own financial affairs). To be “durable,” a Power of Attorney must contain these words: “This power of attorney shall not be affected by the disability of the principal.” A “Springing” Power of Attorney is one which will start to work only when the principal becomes incapacitated.
Most Powers of Attorney which people have are Durable General Powers of Attorney. That is, they give broad powers to do anything, they can be used while the principal is still healthy, and they can be used even if the principal becomes disabled or incapacitated. However, you cannot tell by the title. Some Durable General Powers of Attorney are called “Durable Power of Attorney.” Others are called “General Power of Attorney.” Still others are called “Power of Attorney.” You have to read the actual words of the document to find out whether a Power of Attorney is “general” or “special”, “durable” or not, and “springing” or not.
A Durable Power of Attorney is an important part of every estate plan. If a person becomes incapacitated, the Attorney-in-Fact can withdraw money from accounts to pay bills for the principal, open and close bank accounts, sell stocks or mutual fund shares, sell or rent out real estate, and do whatever else is necessary to handle the financial affairs of the principal. If a person has any assets in his or her own name and does not have a Durable Power of Attorney, there will be a problem if that person becomes incapacitated. The family members will not be able to withdraw money or pay bills for the incapacitated person. One of the family members will have to hire an attorney, go to court, and ask the court to appoint a “conservator” of the property of the incapacitated person. (The conservator used to be called a “guardian.”) After the court officially appoints someone to be the conservator, the appointed conservator will be able to withdraw money, pay bills, and handle other financial matters for the incapacitated person. However, the court will order the conservator to keep careful records of every penny that comes to the incapacitated person and every penny that is spent for the incapacitated person. The conservator will have to go back to court every year, or as often as the court orders. Each time the conservator goes back to court, the conservator will have to provide an accounting of all the money that came in and went out since the last accounting. There will be more attorneys fees and costs each time the conservator goes back to court. The conservatorship hassle and expense can easily be avoided by having a good Durable Power of Attorney, which will allow the Attorney-in-Fact to handle finances for the principal without an exact accounting and without court supervision or attorneys fees.