Most people are familiar with powers of attorney and how they work at a basic level.  However, these documents can have very important consequences to your overall estate plan and should be thoughtfully drafted.

Let’s begin with defining the different roles in a power of attorney. The Principal is the person creating the power of attorney, giving someone else authority over their financial decisions.  The Agent is the person being given the authority.  Now we can discuss how powers of attorney work.

Powers of attorney may be broad or narrow in scope. For instance, the Principal could give the Agent powers to manage all of the Principal’s assets or limited to only address real property.  Powers can also be limited by time, so that the Agent only has the power to manage the Principal’s assets while the Principal is away.  However the Principal wants to limit the Agent’s powers, is fine; the Principal need only clearly state those limits in the document.

It is important to understand, however, that the Agent’s powers only exist as long as the Principal has the legal capacity to exercise those powers themselves.  If something physically happens to the Principal and they are not able to manage their own finances (due to a coma, say), the Agent loses their powers to act on the Principal’s behalf as well. 

This does not work so well in the world of estate planning, where we typically do not want our Agents to have any powers unless we are incapacitated. This is easily addressed by making the power of attorney “durable,” which allow it to continue to function even when the Principal lacks capacity.  In order for a power of attorney to be “durable,” it must include specific language stating this intent.  In the world of estate planning, our powers of attorney are typically “durable” as that is how we best serve our clients.

Another choice in powers of attorney is whether it is effective immediately or “springing.”  A power of attorney that is effective immediately gives the Agent the powers in the document immediately upon the Principal signing it.  Even though the Principal is fully capable of managing their own finances, the Agent has full authority alongside the Principal.  Typically, when we are naming an Agent to manage our finances for us, we do not want them to have any power untilwe are incapacitated.  To effectuate that, I usually advise a “springing” power of attorney – one which only comes into effect upon the Principal’s incapacity.  In this situation, it is important to have a good clear definition of incapacity in the document itself in order to avoid court for the determination. 

A well-crafted Durable and Springing Power of Attorney often works best to satisfy my clients’ desire to have someone named to manage their assets only if they are unable to manage them alone.  Working with an experience estate planning attorney will ensure that your documents are drafted in a way most beneficial to your situation.