WHO WILL MANAGE YOUR MONEY WHEN YOU CAN’T?
A Durable Power of Attorney is a legal document you complete in which you appoint and delegate to an agent the power to make financial decisions and transactions on your behalf if you are unable to do so yourself. The term “durable” means the power of attorney form remains effective if you become incapacitated. The person you appoint in this document to act on your behalf is referred to as your attorney-in-fact. Some states calls this document a “financial power of attorney” or “financial proxy.” Some states call the attorney-in-fact a financial agent.
Just as important as naming someone to act as your agent is defining what powers you want to give to your agent.
FACT: Your attorney-in-fact will not have the authority to manage assets owned by a trust. The trust names a trustee or successor trustee who has the inherent legal authority to manage trust assets.
- Who can you appoint as your attorney-in-fact?
- Can you appoint more than one attorney-in-fact?
- What type of financial authority do you want to give your attorney-in-fact?
- Does your attorney-in-fact have the authority to make health care choices for you?
- How long is a Durable Power of Attorney effective?
- How do you revoke your Durable Power of Attorney?
- Does an attorney-in-fact have to report how they managed your money?
- How does your attorney-in-fact perform business on your behalf?
- What is a “Springing Power of Attorney”?
- What is the difference between a Power of Attorney and a Durable Power of Attorney form?
- If you have a living trust, do you need a Durable Power of Attorney?
- What happens if you have not created a Durable Power of Attorney form?
- Why should you complete a Pre-Need Conservator form?
A. Your attorney-in-fact should be someone you trust to manage your money when no one is watching them.
Although the person you designate to act on your behalf is sometimes referred to as an attorney-in-fact, you do not need to name an attorney to act on your behalf. You can appoint an adult person or a financial institution, including your attorney, to act as your attorney-in-fact.
You may name back-up agents in the event that the first person is unable or unwilling to serve. This is highly advisable. If you only name one agent and for some reason they can’t act as your financial agent, your family would need to request the probate courts appoint a financial agent to act on your behalf.
Financial institutions and attorneys-at-law usually charge a fee for serving as your attorney-in-fact. Some states require the person you appoint as your agent to also sign the durable power of attorney form, acknowledging their appointment.
A. Generally, you may appoint more than one attorney-in-fact when you complete a durable power of attorney form. However, if you appoint two or more persons to simultaneously serve as your attorneys-in-fact, you should specify whether they must act jointly or whether each can act separately.
You may specify that for some types of decisions they must act together and that for other types of decisions they may act separately. You might, for example, want both attorneys-in-fact to make the decision to sell your house, but allow either to manage your living expenses.
If you own a business, you may consider creating a separate power of attorney to designate someone to make financial decisions about that business.
A. Just as important as naming someone to act as your agent is defining what powers you want to give to your agent. In many states, the durable power of attorney is “statutory form,” meaning the authority granted to your attorney-in-fact and the signature requirements are specifically described in state laws.
When completing your power of attorney, understand what authority your state automatically grants your attorney-in-fact. It may be necessary for you to add language giving your agent certain powers or your agent will not have them.
- In New York, Florida and North Carolina, you must file a copy of your signed durable power of attorney with the county recorder where you own real estate if the power of attorney authorizes the attorney-in-fact to conduct real estate transactions. The document becomes a public record.
- Many states require that for an agent acting under a durable power of ttorney to amend, modify or terminate a trust, both the durable power and the trust agreement must specifically provide this authority to the agent.
Like your health care power of attorney, the more specific you are regarding the duties you want your agent to perform for you, the better. For example, your durable power of attorney should address whether your agent has the authority to:
- write and deposit checks
- buy or sell real estate,
- invest your money
- manage your taxes and retirement accounts
- borrow money
- operate your small business
- make gifts on your behalf
- sign contracts that buy or sell things for you
- change beneficiaries
- manage your social security or other government benefits
- hire counsel and engage in litigation on your behalf.
A. In most states, the answer is no. State statutes governing financial power of attorneys do not permit the inclusion of language giving your agent the right to also manage your health care. You must create a separate health care power of attorney form identifying the person you want to make health care choices for you when you can’t.
FACT: Power of attorney statutes
If you live in Alaska and Pennsylvania, these state statutes allow you to add instructions to your financial power of attorney covering your health care decisions.
A. The authority of the attorney-in-fact automatically ends at your death at which point a personal representative, executor or a trustee takes over. If you want your attorney-in-fact to be responsible for managing your financial affairs after you die, name them as the executor in your will or the trustee in your trust.
You can create a revocation form terminating the appointment of your financial agent at any time while you are living. You would then complete a new form naming a new attorney-in-fact.
If you get a divorce, some states automatically terminate the authority of your ex-spouse named to serve as an attorney-in-fact. In other states, you have to revoke your existing power of attorney. To be on the safe side, if you file for a divorce, revoke any forms naming your ex-spouse to act on your behalf.
If the attorney-in-fact you named dies or is not available, the form is no longer effective. Name an alternate attorney-in-fact in your power of attorney form to avoid this problem.
A. The person who created the original durable power of attoney form must complete a revocation of durable power of attorney form. Once the revocation form is created, a copy needs to be sent to the person named as the attorney-in-fact on the durable power of attorney form being revoked. Send the revocation form by certified mail or other mailing process requiring a delivery signature. If the form was filed with the country recorder, you should also file the revocation form with the county.
A. Most states do not require your attorney-in-fact to report how they managed your money. Several states are considering or have passed legislation requiring attorney-in-facts to make financial reports. You have the right to add instructions requiring your attorney in fact to report on the activities they take on your behalf.
A. A signed durable power of attorney is immediately effective, and stays effective until you revoke it or you die. You may add language to a durable power of attorney turning it into a “springing” power of attorney.
A “springing” power of attorney is not immediately effective. It “springs” into effect upon the happening of a specific event, such as illness or injury. You can include language requiring your physician or a third party to confirm your mental incompetence to activate the power. This will give you some protection against a greedy or impatient attorney-in-fact. It will, unfortunately, delay the moment when somebody will be authorized to manage your affairs.
Not all states permit a springing power of attorney.
A. Yes, you probably do. Your trust should include language granting the successor trustee or the co-trustee the right to make financial decisions regarding trust assets if you become legally incapacitated. When this language is part of the trust, the trustee has the right to manage trust property without any other legal procedures.
Even if you have a living trust where the language gives the trustee the right to manage trust assets on your behalf if you become incapacitated, it is almost certain that you will have some assets that are not owned by the trust, such as individual retirement accounts (IRAs) or Roth retirement accounts. Or, you may own property whose title has not yet been transferred into the trust.
Since these assets are not owned by the trust, the trustee of your trust and any instructions regarding incapacity in your living trust do not govern them.
Your durable power of attorney will give the attorney-in-fact the authority to manage property you own as an individual or jointly with someone else.
Your durable power of attorney will give your attorney-in-fact the authority to manage property now owned by your trust. Your attorney-in-fact can be given the authority, or instructed, to transfer all of your property to your living trust.
A. There is one key difference between the two. A power of attorney is effective if, at the time it is used, you are living and of sound mind. It ceases to be effective if you are dead or not of sound mind.
A durable power of attorney continues to be effective whatever your legal capacity, or incapacity, may be. A durable power of attorney includes words such as “This power of attorney shall not be impacted by any subsequent incapacity or disability”.
A. Your agent would provide a copy of your signed, witnessed and, in some instances, notarized form to your bank or brokerage firm. He or she would then sign documents on your behalf as “John Doe, attorney-in-fact for John Smith.”
Some banks or financial institutions are reluctant to accept a power of attorney form. Ask your bank or financial institution about the method by which someone can perform business on your behalf. If they ask you to complete a power of attorney form supplied by the bank, make sure the word “durable” is on the form.
A FAMILY STORY: Durable Power of Attorney
Tom executed a durable power of attorney document designating Katie, his wife, as his attorney-in-fact. As the named attorney-in-fact, Katie had the right to make decisions for and on behalf of Tom.
Tom had a stroke six months later and was unable to communicate.
Katie decided to sell the house she and Tom owned as joint tenants. Katie sold the house two weeks later. The Contract of Sale listed Katie and Tom as owners of the property. Signature lines were provided for both Katie and Tom to sign.
Katie signed as Katie. She then provided a copy of the durable power of attorney identifying Katie as attorney-in-fact for Tom. Katie then signed on the line requiring Tom’s signature as “Katie Smith, attorney-in-fact for Tom.”
A. If you have not properly created a durable power of attorney and your assets are not included in a living trust, it is likely that no one has the legal authority to make financial transactions on your behalf without court intervention.
- It surprises many married couples to learn that a spouse does not have the legal authority to buy or sell property requiring their signature as a joint owner.
- If your children need to act as caregivers, your children may not be able to manage your money without you designating them as your attorneys-in-fact.
- If you are not married, your partner will generally not have the legal right to manage your financial affairs unless you have completed a power of attorney naming him or her as your attorney-in-fact.
In the absence of any such advance directive from you giving someone the power to manage your money and property for you, a spouse or a child must begin a legal process known as a Conservatorship with the probate court.
A. A pre-need conservator form allows you to nominate someone to serve as your conservator. Even if you have completed a durable power of attorney, someone could petition the court and request the court appoint a conservator to manage your affairs. You can nominate someone to serve as your conservator in case this should happen, giving you another layer of control in naming someone to manage your affairs when you can’t.
Read about other financial directive forms you may need if you become incapacitated.