Powers of attorney

As part of basic documents for estate planning and planning for possible incapacity, most individuals should have a durable power of attorney. A durable power of attorney works only during lifetime and relates only to the management of assets; it does not address your health care decisions.

Purpose, use, comparisons

Durable powers of attorney drafted for the management of property or assets are an extremely powerful and important legal document that should be considered as part of any estate plan. It should be reserved, therefore, for situations where the principal (you) can safely and properly transfer to a trusted agent (the attorney-in-fact) the desired authority. By executing a durable power of attorney, you authorize another person to act for you. However, your agent has no duty to act unless you and your agent agree otherwise in writing, regardless of whether you have become incapacitated or are otherwise unable to act.

What happens without a durable power of attorney?

If you are incapacitated, without a valid durable powers of attorney, other steps – often including a court-supervised conservatorship – will be required to handle your finances. It is best to avoid a public and costly conservatorship if possible.

Giving someone your durable power of attorney is like giving them a second set of your keys. You still have your own keys and may use them, but now they have a set too. In contrast, if you are subjected to a conservatorship, the court takes away your keys, prohibits you from using them, and gives your keys to someone else.

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Scope of powers

None of the permissive provisions in a form durable power of attorney are required by law. You may delete or limit them as you desire. On the other hand, if you want to grant your agent any of the following estate planning powers, they must be specifically authorized in the document:

  • Create, modify, or revoke a trust
  • Fund, with your property, a trust not created by you or a person authorized to create a trust on behalf of you
  • Make or revoke a gift of your property in trust or otherwise
  • Exercise the right to make a disclaimer on your behalf
  • Create or change survivorship interests in your property or in a property in which you may have an interest
  • Designate or change the designation of beneficiaries to receive any property, benefit, or contract right on your death
  • Make a loan to the attorney-in-fact

Through durable powers of attorney, you are granting a wide scope of powers to your agent. Such extensive and general powers give your agent authority to manage, dispose of, sell, and convey your real and personal property; to use your property as security if your agent borrows money on your behalf; to transact any and all business for you, such as sign checks and pay bills; make and change investments (including insurance); operate your business; bring and defend against claims and litigation; apply for and collect benefits from social security, Medicare, Medicaid, or other governmental programs, or civil or military service and retirement plans; handle tax matters, etc. However, it is just such a broad set of authorities that presents the greatest risks of abuse.

When the powers become effective and duration

A DURABLE power of attorney allows your agent to continue to function during any time that you are incapacitated, but all such powers lapse at your death, when your Will or other estate documents become effective. You can customize your power of attorney to suit your particular needs. A power of attorney can be IMMEDIATELY EFFECTIVE upon execution of the document, or the authority can be drafted to SPRING into effect upon the event of your incapacity. Additionally, your power of attorney could be IMMEDIATELY EFFECTIVE as to a specific person (such as your spouse), but will SPRING upon your incapacity for anyone else. You can LIMIT the powers granted to an agent, as well as limit the time from for which the powers are effective.

Once you have given the signed document to your agent (for immediate powers) or your agent’s powers become effective (for springing powers), your agent’s powers will continue to exist for your entire lifetime unless you state a shorter duration (or regain competency) or terminate the durable power of attorney. Once your agent’s powers become effective, he or she has virtually unlimited powers over your property and other legal affairs. The power of attorney gives the agent authority to PAY himself or herself for carrying out your power of attorney and representing you. An agent is entitled to reasonable compensation for services rendered to you and to reimbursement for reasonable expenses incurred as a result of so acting unless you state otherwise in this document. The agent also has authority to pay others to help in implementing the power of attorney.

The power of attorney gives your agent a RELEASE FROM LIABILITY, except for willful misconduct or gross negligence, and gives GUARANTIES TO THIRD PARTIES that they can rely on your agent’s authority. The agent must exercise his or her powers only in a FIDUCIARY CAPACITY, acting only in “your best interests.” As a fiduciary, your agent is held to standards set by law. The risk is that sometimes people react contrarily when provided with such extensive powers over something that is not theirs. Making the right choice of agent is thus an important task.

Remember: you may revoke and amend this document (following proper procedures; see below) at any time, including changing your chosen agents. Court procedures are available for interested parties to question the actions of an agent under a power of attorney.

At any given time, the agent managing your assets may not be the same person acting as your agent to manage your health care. Obviously, the two, if different, must act together. Your health care advance directive (or durable power of attorney) should direct that the agent managing your health care interest has the greater power, in your best interests. Recording your durable power of attorney makes it a publically accessible document and takes away your privacy to that extent. A California durable power of attorney is not required to be recorded. A durable power of attorney often contains information about certain accounts and/or policies that you may not wish to make public. Recording may be important, however, if you own real property. If you wish to record your document, then it should be recorded in the county where you reside and in the county where your real property is located.

Even though financial powers of attorney remain legally viable until your revoke or amend them, financial institutions and other third parties may be reluctant to accept the document. Some federal agencies simply refuse to recognize a state durable power of attorney. The Department of Veterans Affairs is one of those. The Social Security Administration is another example; it might accept the durable power of attorney for some purposes, but has its own documents (and will not accept a state durable power of attorney) for other purposes. There may be nothing you can do about this, except to be aware of the problem. A related problem is staleness. A durable power of attorney may be legally acceptable, but many bureaucracies are reluctant to accept “stale” documents – ones that were signed long ago. There is no standard time frame for “staleness,” so for practical reasons, it is recommended that a durable power of attorney be updated every three years, where possible.

A change in your circumstances, or simply a loss of faith in your named agent, may indicate a need to revoke or amend your durable power of attorney. In California, a durable power of attorney is generally revocable and amendable at any time by you as long as you are competent. Such changes will alter or cut off your agent’s authority to act and may avoid potential problems. That is, you may “take back your keys” from the agent you named. Under a conservatorship, the court will not allow you to do so without a formal court hearing. Although your durable power of attorney can be revoked, it may be DIFFICULT TO REVOKE as a practical matter. You will have to give written notice of revocation to your agent and all third parties who have received copies or acted in reliance upon it. You should also retrieve and destroy the original and all copies of the document from your agent. In addition, you should record a revocation with the County Recorder where the original document was recorded, and with the County Recorder or court in which you have real property, even if the original document was not recorded.

For bank accounts, consider signing your bank’s financial power of attorney form, in addition to your broader durable power of attorney. The bank forms will apply only to the specified accounts within the same bank. In a practical sense, agents often find it easier to deal with banks when you have used the bank’s form. You should read the form carefully, however. Make sure that the form is consistent with your durable power of attorney, that it names the correct person(s), that it does not give your agent more powers than you wish, and just as important, that it gives your agent enough power.

You may wish to give a copy of this document to the agent(s) that you have named. An alternative — and my recommendation – is to ask your nominees if he or she is willing to serve before you sign your durable power of attorney, and if so, then notify your agents of their nomination and tell them where they can find the document if and when it is needed. You retain more privacy and control of your own affairs as a result, but have given notice in case you need the assistance that your document provides.

Why McLaughlin Legal?

McLaughlin Legal is a boutique San Diego law firm, and we strive to provide each client with good judgment, personalized legal services, and great results. McLaughlin Legal prides itself on our three core values:

  • Concentrated practice areas — McLaughlin Legal prioritizes expertise. Our firm practices the very specific discipline of tax law, and we believe this focus is key to our success. When a client needs tax law services, such as defense in an IRS audit or drafting a detailed estate plan, McLaughlin Legal can match the level of service of any other law firm.
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McLaughlin Legal’s structure, plus our experience with tax litigation and tax controversies, allows us to represent clients who have tax problems (like an IRS audit or California tax issue) and also advise on other tax law issues with a perspective not found elsewhere. We strive to provide the highest quality services to anyone who entrusts us with their case.

McLaughlin Legal wants to be sure that any estate planning matter, including a financial durable power of attorney, will fit your needs and situation. Together we can help you and your family achieve all of your estate planning goals.

If you are interested in learning more about estate planning, including incorporating powers of attorney, please feel free to contact McLaughlin Legal today for a free consultation.