If you become incapacitated or are not mentally capable of making decisions, who will handle bank accounts in your name alone, sign checks, deal with your retirement accounts, or otherwise make financial decisions for you? Following a traumatic incident, you and your family may not have the time or ability to address those issues, but a bit of advance thought and planning can be extremely beneficial and potentially save significant time, money, and heartache. You may think if anything happened to you that your spouse or kids could automatically take care of your financial affairs, but that may not be true. To avoid issues and make things easier on your family should something happen to you, it is best to have a comprehensive Durable Financial Power of Attorney in place.
What is a Power of Attorney?
Generally speaking, a Power of Attorney is a document in which you (the “principal”) designate someone to act for you (the “agent”), either for your convenience or because you become physically or mentally incapacitated. Under a financial power of attorney document, you appoint an agent to handle your financial affairs-for example, pay your bills or handle your bank accounts, real estate, business interests, IRAs, other retirement accounts, and insurance. A power of attorney may also authorize your agent to make gifts on your behalf or create or change a retirement plan or insurance beneficiaries, among other things. Given those broad powers, your agent must be someone you trust, such as your spouse, your child(ren), or a trusted friend. Generally, Pennsylvania law requires i) the principal of a financial power of attorney to sign the statutorily required notice, ii) the principal’s signature or mark to be witnessed by two individuals (not the agent or the notary) and acknowledged before a notary public, and iii) the agent to sign the approved acknowledgment to essentially act in good faith. The agent must act in accordance with, and within the scope of, the specific powers set forth, act in accordance with the principal’s reasonable expectations, if known, and, otherwise, act in the principal’s best interests. The Power of Attorney remains in effect unless and until revoked by the principal or by court order. The agent’s authority to act under the Power of Attorney ceases upon the principal’s death.
What makes a Power of Attorney durable?
In the context of a Power of Attorney, Durable means the powers conferred upon the agent are exercisable even if the principal subsequently becomes disabled or incapacitated. Under Pennsylvania law, and absent language to the contrary, all powers of attorney are presumed to be durable.
What are Some Benefits of a Power of Attorney?
Choosing your agent. For the vast majority of us, it is critically important that we decide who makes decisions on our behalf. Most of us would rather name and appoint our agent(s) to handle our finances and make financial decisions for us, rather than rely upon the court to later appoint a guardian (who you may not even know) to do so. By creating a Power of Attorney, you control who will act for you and can consider the specific powers or limitations of your agent, the best person for the position given your particular assets and circumstances, as well as give thought to your particular family dynamics, such as a second family situation. The power to select an agent of your choosing cannot be overstated.
Opportunity to review with your agent. Advance consideration, thought, and preparation of a Financial Power of Attorney provides an opportunity for you to discuss your needs and expectations with your agent before a disabling physical or mental illness or condition undermines that opportunity. You may discuss your specific intent and wishes in detail with your agent, so your agent is prepared to act when the time comes or discuss how your needs are likely to change as your family changes or as you get older. Through a properly drafted Durable Power of Attorney, you can address all of those issues with your agent.
Avoid confusion. With your intent and wishes specified and set forth in a properly executed Power of Attorney, you typically avoid confusion and uncertainty regarding how your affairs should be handled during your lifetime in the event you become incapacitated. A well-drafted Power of Attorney can remove the disputes between family members regarding how your financial needs should be handled. Should you become legally incapacitated, your family members should not spend time fighting over how your finances should be addressed. Instead, there should be someone ready and willing to step in and make the necessary decisions. If you plan ahead, with the assistance of a durable Power of Attorney, you can avoid most of those disputes.
Avoid time and expense of legal guardianship proceedings. In the event you become incapacitated and are without a Power of Attorney, your family members (or some other interested party) may be required to file for the appointment of guardian to act for you. Guardianships are legal proceedings where an interested party files a petition with the court requesting the court to appoint a guardian (most often a family member but in frequent instances an attorney or another unrelated third party) to act for you due to your incapacity. Once appointed by the Court, the guardian handles your financial affairs under the supervision of the Court. Not only can guardianship proceedings be time-consuming and expensive, as well as be emotionally painstaking for your family, but your assets/finances (for most of us sensitive and private information) will be reviewed by the Court, or court-appointed third parties. You can generally avoid this situation by executing a Durable Financial Power of Attorney while you are healthy; in fact, your Power of Attorney may actually name who you would like to be your guardian if future circumstances so require. You make the decision about who is to act for you in the future, not the Court.
Provide flexibility for asset protection. This becomes particularly important when an individual enters a nursing home. If someone fails to take proper steps to protect their assets before becoming a nursing home resident, those assets could be taken to pay for nursing home care. Through a properly drafted Power of Attorney, your agent may take certain steps to properly shelter your assets or a portion of your assets. For example, your agent may deed real property or make gifts that help protect your assets.
The Durable Power of Attorney is an important component of one’s estate plan, along with a Will and Health Care Power of Attorney/Living Will. So, while healthy, take the time to protect the assets you worked so hard to acquire and accumulate by preparing a well-drafted and comprehensive Durable Financial Power of Attorney.
This article is intended as general legal information and not as legal advice. Should you have any questions regarding the subject matter of this article or wish to discuss your particular circumstance or situation, please contact the author.