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 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 can give the Agent powers to manage all of the Principal’s assets or limited them to only address real property.  Powers may 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 is important to understand 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 creating documents specifically allowing 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.  In Oregon, the default is that a Power of Attorney “durable;” however, I always in include specific language stating this intent, as this may not be the default in other states.  Almost all of the Powers of Attorney I prepare are “durable.”

Another choice is whether to make the Power 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 simultaneous full authority alongside the Principal.  Typically, when naming a financial Agent, we do not want their power to exist unless we are incapacitated.  To effectuate that, I 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 Springing 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 experienced estate planning attorney will ensure that your documents are drafted in a way most beneficial to your situation.