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Power of Attorney
A Power of Attorney is the one document that should be a part of everyone’s estate plan. A Power of Attorney is a written legal instrument in which you (the principal) appoint another person or institution (the attorney-in-fact or agent) to act on your behalf. By appointing an attorney-in-fact or agent you are NOT giving up the right to also act on your own behalf as you would normally. You are merely deputizing someone else who can also act as you would. It’s like legally cloning yourself.
There are several very good reasons to execute a Power of Attorney. Powers of Attorney are not just documents that should be executed by elderly people. No one knows when they may become incapacitated. Once a person becomes incapacitated or incompetent it is too late to execute a Power of Attorney, and the opportunity to appoint someone to make decisions on your behalf is lost.
There are two basic types of Powers of Attorney. The first type is limited by its scope and duration. A good example of this type of Power of Attorney would be where an individual has a piece of property in another state and wishes to sell it. This person could execute a Power of Attorney granting the agent the power to sign all the documents at the closing. This type of Power of Attorney would be limited to the period of time for the closing and only for that specific purpose.
The second and more common type of Power of Attorney is a Durable Power of Attorney. A Durable Power of Attorney is utilized when it is necessary to have someone act in a wide variety of situations for a period of time until the principal revokes the power or dies. Durable Powers of Attorney must contain specific language to keep them effective should the principal later become incompetent. A lot of clients ask us what makes this Power of Attorney “durable.” It is called a Durable Power of Attorney because unlike a general Power of Attorney, this instrument remains in effect after a person is incapacitated.
There are dangers associated with executing a Power of Attorney. These instruments grant very broad powers to the agent, and these powers can be misused by the agent. These powers are given to benefit the principal not the agent. Great care should be used in selecting a person to be your attorney-in-fact. Please see the chapter on choosing a Fiduciary.
Many people who come into our office tell us that they have added their son/daughter/grandchild to their bank account, so that should something happen to them their son/daughter/grandchild will have access to the money to pay the bills, taxes, etc. While there are dangers associated with giving your agent broad powers in your Power of Attorney, there are many more dangers associated with adding the name of someone to your bank account. Even though clients have said, “The nice lady at the bank told me this is what I should do,” we do not recommend this for several reasons. First, when you add another individual to your account (bank, brokerage, etc.) the person added becomes an owner of that account. Should that person be sued, or get divorced, or have a bad car accident, your money could be used to satisfy their creditor’s claims. Secondly, should you pass away, the money in those accounts will automatically belong to them. In this case your bank account will pass outside your Will, which would defeat the goal of equally distributing your assets. A Durable Power of Attorney allows others to access your funds but not own those funds, thus greatly reducing the risks. Great care should be used when deciding whether or not to add the name of another person onto your bank accounts.
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Estate Planning • Asset Protection • Charitable Planning • Probate Administration • Medicaid Planning • Premarital Planning