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.

First, some important terminology to understand the different roles in a Power of Attorney.  The Principalis the person creating the Power of Attorney, giving someone else authority over their financial decisions.  The Agentis 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 them to only address real property. Powers can also be limited by time, allowing the Agent 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 should be clear, however, that in a general Power of Attorney, the Agent’s powers only exist as long as the Principal has the legal capacity to exercise those powers themselves.  If something happens to the Principal and they are not able to manage their own finances (due to a coma, say), the Agent loses their ability to act on the Principal’s behalf. 

This does not work so well in the world of estate planning, where we are setting up documents specifically to allow others to help us if we are incapacitated.  Luckily, this problem is easily addressed by making the Power of Attorney “durable,” allowing the powers of the Agent to continue even when the Principal lacks capacity.  For a Power of Attorney to be “durable,” it must include specific language stating this intent.  Almost all of the Powers of Attorney I prepare for my clients are “durable.”

Another choice is whether to make the Power of Attorney 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 Spring Durable 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.