Will Your Power of Attorney Expire Before You Do? The power of attorney for property is a key element of a solid estate plan. A durable power of attorney authorizes your agent (also known as attorney in fact) to take care of your nontrust property if you are absent, incapacitated or otherwise unable to do so. But with a nondurable power of attorney, your agent’s authority ends if you become incapacitated. Then either your spouse or a court-appointed person will manage your property. But married couples shouldn’t assume that a spouse can step in and manage an incapacitated spouse’s financial affairs. For example, a spouse can’t dispose of property in your name -- or sell jointly owned property -- without your permission. Durability If you want to continue your agent’s authority after you become incapacitated, the power of attorney must state explicitly that: o The power is “durable,” and o The agent’s authority won’t terminate if you become disabled or incapacitated. A durable power remains in effect until you revoke it or die. In most cases -- especially if you fear incapacity due to advancing age or serious illness -- you’re probably wise to make your power of attorney durable. Springing Power If you are robust and fearless, and decide you don’t need to grant legal authority to an agent now, you should at least create a “springing” power of attorney. It authorizes your agent to act on your behalf only if you are physically or mentally incapable of doing so. The springing power is durable by definition. To create a springing power, you need to incorporate language similar to this: “The agent’s authority will take effect on my attending physician’s written certification that I am unable to promptly and intelligently consider financial matters.” Statutory Limits In most states, some matters fall outside your agent’s authority -- such as caring for minor children, executing or amending a trust, changing beneficiaries for nonprobate assets, and making healthcare decisions. Healthcare decisions usually require a separate durable healthcare power of attorney. You may revoke a power of attorney at any time for any reason. If you do, be sure you notify all third parties so they will know that you no longer authorize your agent to act on your behalf. Choosing an Agent You can appoint almost any responsible adult as your agent. Spouses often appoint each other, with an adult child as successor. But your spouse may not be the wisest choice. Your agent should be qualified to professionally carry out the granted powers, according to strict fiduciary standards. Whomever you choose as your agent must at all times use due care to act in your best interest and for your benefit. Be sure to find out if your choice is willing to assume the duties before you appoint him or her. Usually no official or government agency monitors an agent’s conduct, so choose somebody you trust. And you should specify that your agent keep records of all transactions conducted on your behalf. You can make your agent’s authority broad and general. Or you can limit the authority to a specific transaction or time period. Specific transactions might include managing your investments, selling a home, paying bills, collecting debts, filing tax returns, executing contracts and perhaps operating your business. A specific period might include an extended vacation when you will be inaccessible. Exercise Caution The power of attorney is a powerful legal tool that, if not carefully worded, can serve as a signed blank check. Please call us for advice on whether you need a power of attorney and how to properly word it if you decide to create one. Sidebar: Spell Out Your Agent’s Powers Even if you create a general power of attorney giving your agent broad powers, what should it contain to be on the safe side? The document should list the transactions or types of transactions that you want it to cover. Failing to mention a specific power could conceivably exclude it from your agent’s authority. A 1991 appellate court decision, Estate of Swanson, illustrates this point. Two months before her death, Mrs. Swanson created a general durable power of attorney and appointed her nephew as agent. When she was on her deathbed, her nephew made gifts of $10,000 each to 38 of her relatives and close friends. Making such gifts used the annual gift tax exclusion and removed $380,000 from her taxable estate. But the IRS claimed the nephew had exceeded his authority despite the durable power’s broad language. As a result, Mrs. Swanson’s gross estate included the $380,000, and the estate owed an additional $140,000 in tax. If you wish to authorize your agent to make annual exclusion gifts, limited currently to $11,000 ($22,000 for couples) -- whether to family or nonfamily members -- spell it out in your power of attorney. Contact | Legal Disclaimer