We discuss the important considerations and intricacies of the Financial Power of Attorney document in the estate planning process and difference between the General Power of Attorney and Durable Power of Attorney. This should be part of any estate plan checklist.
When preparing to give another person the ability to make financial decisions for you, there are many things to consider. Everyone’s situation is different so it is important to consider the following things for your living documents and estate plan.
What does this document do in the first place? Power of Attorney means that you give someone written consent in order to do things on your behalf. This can apply to medical practices where you may choose someone such as a family member to make decisions for you should you be incapacitated. Please see a previous blog “Advanced Health Care Directive”.
The scope of this article is on financial powers of attorney. There are different kinds.
A “General Power of Attorney” and a “Durable Power of Attorney” are both closely related. The main difference between them would be the duration of applicability.
- Simply put, the General gives powers to the third party, up until you are unable to speak for yourself.
- The Durable is powerful through when you are incapacitated, up until death.
The General Power of Attorney
The General Power of Attorney can act as a safety net in cases where you do not have full trust in this person having powers of your financial decisions. It is potentially preventing decisions made on your behalf from going against what you want or believe in. You have the power to revoke this any time.
The General allows you to give someone else the power of acting on your behalf when concerning legal documents (almost letting them step into your shoes) in order to carry out your will if you. For example, happened to be out of the country and couldn’t perform or sign off on certain transactions. One common use of it would be giving the power of signing documents or buying and selling property in your name. A general POA is usually issued for a limited period of time and is ultimately revoked.
The Durable Power of Attorney
On the other hand, the Durable Power of Attorney would leave your finances with the full control of whoever is chosen. In many cases, this is just fine with a trusted spouse, adult child or family member who you trust completely. This is usually used for estate planning purposes. A durable power of attorney is much harder to revoke once you become incapacitated. Family members or business partners can contest a durable power of attorney in court and would need to win the case if they want it revoked.
Other strategies if you are not completely trusting of the person you are giving a power of attorney to include limiting certain powers. This would be a limited power of attorney versus broad sweeping powers. You can choose where to limit these powers. For example, a limited power of attorney may simply just give the power to pay bills and taxes, and nothing else.
You can also decide whether you want the powers to take effect immediately, also called “standing” powers. Otherwise, it can be a “springing” power which usually triggers the moment you are incapacitated. Most powers of attorney for estate plans are springing and durable.