A Durable Power of Attorney is a powerful estate planning tool.
Properly drafted, this document allows one to designate a person of one’s choosing to be able to manage one’s affairs when one is physically or mentally unable to do so for oneself.
The person who signs a Power of Attorney is called the Principal. The Power of Attorney gives legal authority to another person called the Agent or the Attorney-in-Fact to make financial and legal decisions for the Principal. The authority that the Principal grants the Agent can be as narrow or as broad as the Principal desires.
A Durable Power of Attorney lasts until it is revoked by the Principal, or until the death of the Principal. The document is “durable” because it survives the Principal’s mental and physical incompetence.
A Durable Power of Attorney becomes effective once executed and generally grants someone else great power to make decisions for the Principal and to enter into agreements on the Principal’s behalf. Clearly then, one must be concerned about the potential abuse of the Durable Power of Attorney and the possibility that it can be used fraudulently against the Principal.
Therefore, it is advisable to be cautious when determining whether to grant such powers and to whom. In light of the dangers associated with the abuse of these powers, many people are uncomfortable granting them to someone else while they are still capable of managing their own affairs.
A potential solution to this problem can be the use of a Springing Power of Attorney instead of a Durable Power of Attorney which only becomes effective at a later date upon the occurrence of a specific event, which is usually the illness, incapacity or disability of the Principal.
However, although a Springing Power of Attorney may be attractive to some because of the flexibility that it provides, it is not without its risks.
As stated above, in order for it to “spring” into effect, there must be a determination of the Principal’s incapacity usually by one or more physicians. This means that your Agent will not be able to act on the Principal’s behalf until this determination is made.
What constitutes “incapacity” is a gray area. A person might not become fully incapacitated all at once. What happens if the Principal has good days and bad days? What happens if the Agent believes that the Principal is incapacitated but the doctors do not?
A Springing Power of Attorney may unintentionally create a conflict and a delay at a time when the Agent truly needs to act on the Principal’s behalf.
Ultimately, whether to give a Durable Power of Attorney or a Springing Power of Attorney is your choice and you must weigh the pros and cons of each type of power and decide how much risk you are willing to assume.
If you have any questions, please contact us.