Power of Attorney
When we hear the phrase “Power of Attorney” or the longer “Statutory Durable Power of Attorney,” it typically refers to a Financial Power of Attorney (or FPOA).
In short, through an FPOA, you designate an agent who will have legal authority to act on your behalf for (typically) financial and property decisions.
There are a variety of ways to craft an FPOA to suit your needs and desires. In order to prepare the perfect FPOA, you should consider a variety of factors.
Timing
How long do you want your FPOA to last? Do you want to grant your designated agent authority to act as long as your document is never revoked? Or do you want to grant your designated agent authority to act only for a short period of time
Trusted family members often prepare an FPOA that will last until otherwise revoked. It is common when an elderly parent needs ongoing assistance, and an adult child can step in and manage the elderly parent’s affairs. Also, many married couples prepare such “until-revoked” FPOAs. Although most married couples share finances and accounts anyway, and thereby have control without needing an FPOA, some financial institutions might require one in certain situations. For example, if your husband is incapacitated, but you need to make an important investment decision in his retirement account, you will likely need to demonstrate to the financial institution that you have legal authority to do so.
In other circumstances, you might want to grant authority to your agent for only a short period of time. For example, if you know you’ll be out of the country, it might be a good idea to prepare a limited-time FPOA. These needs usually involve time-sensitive transactions such as the sale/purchase of real estate or the sale/acquisition of a business.
Note: An FPOA is only effective while you are alive. Once you pass away, your FPOA expires. But what if you have ongoing affairs that still need to be managed after you pass away? At that time, if you have a solid estate plan in place, your designated Executor or Trustee will step in to settle those affairs.
Scope
The legal authority you grant your agent may be broad or very limited and specific in scope.
As discussed above, trusted family members and spouses will often grant FPOA authority to each other in regards to timing. The same goes for scope of authority. You may wish to grant outright broad authority to your agent. Yes, this means that your agent will have total legal authority to act on your behalf when it comes to your financial and property affairs. Such total authority is so broad that we always include a specific warning and notice in every FPOA that we draft describing the legal power thereof so that our clients know the significance of what they are signing.
Although that sounds like an intimidating commitment, keep in mind that you can include a variety of provisions to keep your designated agent accountable for his or her actions, and liable for any misconduct or self-dealing. These provisions might require reports, accountings, and audits.
In many cases, however, it is a better choice to prepare a limited FPOA. Such a document grants only a very narrow and limited scope of legal authority to your agent. For example, maybe you will be unavailable for an important transaction such as the purchase of real estate. You can prepare a narrow FPOA that grants your agent limited authority to handle the real estate purchase transaction—and nothing more. These kinds of limited FPOAs are also helpful for ongoing affairs that need immediate attention such as business operations. For example, if you own a sole proprietor business, you might prepare a limited FPOA that grants your agent authority to manage ongoing time-sensitive business affairs in the event that you are unavailable.
Capacity
You should also consider your current and future decision-making capacity as you prepare an FPOA.
Perhaps you don’t want to grant the kind of outright authority discussed above. And perhaps you don’t want or need to grant even a limited scope of authority for a particular transaction. For many people, this is ideal. As discussed, an FPOA is very powerful, and it might be best to avoid risk by not even preparing one in some cases.
Despite that, it is good practice at least prepare a “springing” FPOA that becomes effective only in the event that you are incapacitated as determined by doctors, and it ceases to be effective once you regain capacity. In other words, you will prepare the document today, but your designated agent has no authority to manage your affairs under that document unless and until you are incapacitated or otherwise unable to make your own financial decisions.
In many cases, such a “springing” FPOA might be good choice for someone who wants to maintain total control over his or her assets while able, but who anticipates eventual mental deterioration due to Alzheimer’s or Parkinson’s disease. Additionally, it might be a good choice for someone about to have a serious surgery that might cause temporary incapacity. In that case, a “springing” FPOA agent could cover your needs while you are in surgery and recovering.
Practicality
It is also important to consider something that might be out of your control, no matter how well-drafted your FPOA may be.
FPOAs are often used for financial transactions with banks or other institutions. These businesses often operate according to very conservative internal procedures.
For example, some banks might not accept an otherwise valid FPOA if it was signed more than 12 months ago. For whatever reason, that is just their policy. In other cases, they might not be overly cooperative, but eventually accept it if you insist.
To plan for these scenarios, it is best to have a good relationship with your bank or financial institution. Communicate with them about their FPOA policies. Make sure that they’ll accept the one that you have. It might not even be necessary to prepare a new one from scratch. It might only be necessary to sign a fresh copy of your current one. Communication is key.
It is important to consider a variety of factors as you prepare an FPOA as part of your estate plan.