When it comes to planning your estate, one of the most critical tools to bear in mind is the power of attorney. You may be familiar with the term but have not had the opportunity to inquire about setting one up, or about its duration and effectiveness. A power of attorney is a document drawn up by the person owning the estate (also known as the principal), granting another person close to them (known as the agent) legal authority to act on their behalf under specific circumstances. Circumstances might include the principal becoming disabled, ill, or otherwise unable to appear in person to sign legal documents.
Typical Agents Include
- The spouse or an adult child of the principal
- A trusted professional, such as a lawyer or accountant
- Other members of the principal’s family
Limitations and Exceptions
The scope of a power of attorney can be made wider or narrower depending on the power given it by the principal. In all circumstances, the power of attorney has the ability to make decisions regarding those areas of the estate as stipulated in the contract. This may cover the entirety of the estate, including all assets, properties, and finances, or it may only extend to certain parts, like having an agent to manage the principal’s business holdings, while another manages their home. The duration of that power, however, is set by the principal (and in some cases the state).
Usually, the power of attorney is terminated upon the estate holder’s becoming incapacitated; this is standard language in most conventional documents. That may be superseded if the principal is married, at which time the spouse would have decision-making power, or the contract expresses a “durable power of attorney.” The durable power of attorney (DPOA) allows that person to continue in that role past events like the incapacity or death of the principal. In some cases the power of attorney doesn’t come into effect until these events occur; this is called a “springing power of attorney.”
Reasons for Ending a Power of Attorney
- The principal becomes incapacitated or passes away
- The principal divorces or disowns the family currently serving as the agent
- The principal revokes the contract themselves
- The state determines the contract invalid
- The agent becomes unfit to carry out the responsibilities
Dangers to Be Aware Of
Choosing the right person to be power of attorney is a decision that should not be taken lightly. While troubles might be unlikely it is not unheard of for agents to dissatisfy the principal or their family. This can be for a number of reasons: the agent might not be entirely knowledgeable about what goes into making certain financial ventures, like a trust or foundation, successful; the agent may act carelessly when executing certain wishes, leading to lost time or money; or the agent may act destructively.
Essentially, granting someone power of attorney is handing the keys to your finances and assets over to another person as they see fit. Therefore it is of utmost importance to consider the intent, competency, and experience of the person whom you are considering for this position. This will undoubtedly prove difficult for parents of multiple adult children, but choosing the right child (or other family members) to fill the role(s) of agent will be the greatest decision in seeing your wishes fulfilled.
Trusts, and Estate Planning
There are various powers of attorney that are essential in estate planning, as it gives the agent the ability to fully enforce the living will of the principal, both in terms of their assets and their health. As we have explained elsewhere, a living will (or advanced healthcare directive) can dictate how the individual would like their healthcare to be administered as they approach the end of their life. Having someone else with the power to make decisions allows them to work in tandem with documents like these, previously set forth by the principal.
Morris Hall has been assisting individuals and their families for over 50 years. Serving the Arizona and New Mexico communities, we can assist with creating essential documents that every individual should have.
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- When Is a Good Time to Begin Planning for Your Future? - December 23, 2020