The Third Pillar: The DPOA

What is a Durable Power of Attorney?

A power of attorney is a legal document that authorizes someone to act as your agent when you are incapacitated. In estate planning, this document is referred to as the “Durable Power of Attorney for Finances.” The general use is to allow the agent to take care of your personal finances when you have been incapacitated, but you may add specific powers that extend into other areas and for specific periods unrelated to incapacity, such as while traveling internationally. A “Durable” Power of Attorney is one that continues to remain in effect when the person giving the power has lost competency.

Competency, Incompetency, Capacity, and Incapacity

These words may sound as if they mean the same thing, but there are distinguishing factors that alter the rights of your agent. “Competency” refers to your mental ability to understand problems and make decisions, such as in legal proceedings and transactions. In other words, you understand what you are doing when you do it. A Durable Power of Attorney requires this level of competency when signed by you and the power survives your lose of competency. “Incapacity” generally refers to the inability to understand or communicate in ways necessary to maintain physical health, safety, or property. The difference is subtle yet an important legal issue when drafting your documents.

Powers of the Agent

While an Agent for Medical Decisions (discussed next) would make decisions at the hospital, the Agent under Durable Power of Attorney for finances would be responsible for paying your medical bills, hiring personnel to manage your home and investments, and make other nonmedical decisions on your behalf. Absent an agent, your family will have a challenging time making these decisions for you. If your family is desperate to provide assistance, they will have to attain these powers by asking the court, a process called conservatorship (also discussed next).

“My Spouse or Trustee Can Do This”

Not in all cases. That may be the case for joint checking accounts or trust accounts, but jointly held property like real estate and automobiles or retirement accounts of the other spouse would require that spouse to sell assets or withdraw from the account. If you want your spouse to have these powers it is best to provide the spouse with a power of attorney and coordinate property rights with your wishes. Proper estate planning coordinates who acts on your behalf across all your legal documents and all your accounts and property.

Immediate or Springing Power of Attorney

A key consideration is under what circumstance you should make the Durable Power of Attorney effective, meaning when the agent vests the power and may act. “Immediate” is just what it sounds like, as soon as the document is signed. This type of power is appropriate for individuals already in the early stages of incapacity yet still maintaining the capacity required to give the power, such as someone with a cognitive disability that will worsen over time. “Springing” powers take effect on some determination of incapacity and you may make that determination in advance, such as a confirmation your physician. Springing powers are appropriate for people with no fear of incapacity yet wish to plan ahead in case of accident or other unforeseen circumstances.

Continue: The Advance Health Care Directive