Durable Power of Attorney for Finances

A durable power of attorney for finances serves an important purpose by arranging for the management of your finances and avoiding the need for a Conservatorship action (i.e., a court proceeding in which a judge determines who should assume the management of your finances in the event that you are rendered incapacitated). When you make a durable power of attorney, you give your attorney-in-fact full legal authority to handle your financial affairs.

But it is only part of an estate plan (i.e., a plan for distributing your property and taking care of your family at your death). You need other documents to accomplish other estate planning goals (e.g., Will, Living Trust, etc.).

Almost everyone with property or an income can benefit from a durable power of attorney for finances. It's particularly important, however, to have a durable power of attorney if you fear that health problems may make it impossible for you to handle your financial matters.

The main reason to make a durable power of attorney for finances is to avoid court proceedings if you become incapacitated. If you don't have a durable power of attorney, your relatives or other loved ones will have to ask a judge to name someone to manage your financial affairs.

A properly drafted and legally enforceable durable power of attorney for finances allows you to:

• name the person who will handle your financial matters; this person is called your attorney-in-fact
  
• appoint someone to replace your attorney-in-fact if he or she cannot serve
  
• state exactly how much authority you want your attorney-in-fact to have over your finances
  
• specify when that authority should take effect.

In addition to your durable power of attorney for finances, our Firm will also draft a number of related documents to assist you and your agent.

The first of these is an information sheet for you to give to your attorney-in-fact, explaining what his or her responsibilities will be. There are also several forms designed to make your attorney-in-fact's job easier, including forms for delegating tasks to others and resigning from the job if that becomes necessary. Finally, we will produce a form that you can use to revoke your durable power of attorney if you change your mind.

If you are married, don't assume that your spouse will automatically be able to manage your finances if you cannot do so. Your spouse does have some authority over property you own together -- for example, your spouse may pay bills from a joint bank account or sell stock in a joint brokerage account.

Besides the inability to manage your spouse’s separate property, there are significant limits, as well, on your spouse's right to sell property that both of you own. For example, both spouses must agree to the sale of co-owned real estate or cars. Because an incapacitated spouse can't consent to such a sale, the other spouse's hands are tied.

If you own property in a revocable living trust, you may still want to create a durable power of attorney, even though your successor Trustee has the right to take-over management of trust property if you become incapacitated.

That’s because few people transfer all their property to a living trust, and the successor trustee has no authority over property that the trust doesn't own. So although a living trust may be helpful, it is not a complete substitute for a durable power of attorney for finances.

There is a similar problem with property owned in Joint Tenancy. The most notable feature of joint tenancy is that when one owner dies, the other owners automatically get the deceased person's share of the property. But if you become incapacitated, the other owners have very limited authority over your share of the joint tenancy property. In a durable power of attorney, you can give your attorney-in-fact authority over property you own in joint tenancy -- including real estate and bank accounts.

Commonly, people give an attorney-in-fact broad power over their finances. But it's up to you, and our Firm can tailor your DPA according to your desires. You can give your attorney-in-fact authority to do some or all of the following:

• use your assets to pay your everyday expenses and those of your family
  
• handle transactions with banks and other financial institutions
  
• buy, sell, maintain, pay taxes on and mortgage real estate and other property
  
• file and pay your taxes
  
• manage your retirement accounts
  
• collect benefits from Social Security, Medicare or other government programs or civil or military service
  
• invest your money in stocks, bonds and mutual funds
  
• buy and sell insurance policies and annuities for you
  
• operate your small business
  
• claim or disclaim property you get from others
  
• make gifts of your assets to organizations and individuals that you choose
  
• transfer property to a living trust you've already set up
  
• hire someone to represent you in court.

We can tailor your durable power of attorney for finances to fit your needs by explicitly stating which powers you grant and placing certain conditions and restrictions upon the attorney-in-fact. For example, you can give your attorney-in-fact authority over your real estate, with the express restriction that your house may not be sold.

The attorney-in-fact you appoint in your durable power of attorney is a fiduciary, i.e., someone who holds a position of trust and must act in your best interests. The law requires your attorney-in-fact to:

• handle your property honestly and prudently
  
• avoid conflicts of interest
  
• keep your property completely separate from his or her own
  
• keep adequate records.

These standards do not present problems in most simple situations. For example, if you just want your attorney-in-fact to sign for your pension check, deposit it in your bank account and pay for your basic needs, there is little possibility of uncertainty or dispute.

Sometimes, however, these rules impose unnecessary hardships on an attorney-in-fact. For example, your property may already be mixed with that of your attorney-in-fact, and it may make good sense for that to continue. We can draft your DPA to allow you to insert clauses in your power of attorney document that permit your attorney-in-fact to deviate from some of the rules above, so that the attorney-in-fact's freedom isn't unnecessarily fettered.

There are two kinds of durable powers of attorney for finances: those that take effect immediately, and those that never take effect unless one or two doctors declare that you can no longer manage your financial affairs.

You may feel strongly that your attorney-in-fact should not take over unless you are incapacitated. In this case, you have two options.

If you trust your attorney-in-fact to use his or her authority only when it's absolutely necessary, we can make your durable power of attorney effective immediately. Legally, your attorney-in-fact will then have the authority to act on your behalf -- but won't do so unless he or she decides that you cannot handle your affairs yourself.

If you're uncomfortable making a document that's effective immediately, you can make what's known as a “springing” power of attorney. This document will not take effect until at least one physician examines you and declares, in writing, that you can't manage your finances.

You may prefer this kind of durable power of attorney if you're not in immediate danger of incapacity. The document simply acts as a kind of risk-free legal insurance -- something to protect you if you ever need it.

And you may like the idea of a springing document because requiring at least one doctor's statement removes any danger that your attorney-in-fact will make his or her own judgment that you are incapacitated -- even if you disagree. Ideally, however, you will trust your attorney-in-fact so well that this will not be a serious concern.

To make a springing durable power of attorney, you must decide who will be responsible for judging whether or not you are incapacitated:

• you may name one or two doctors to make the determination, or
  
• you may allow your attorney-in-fact to choose one or two doctors if the need arises

If you have created a revocable living trust to avoid probate or minimize estate taxes, the successor trustee you named in the trust document will have power over the trust property if you become incapacitated. If you and your spouse made a living trust together, the trust document almost certainly gives your spouse authority over trust property if you become incapacitated.

Creating a durable power of attorney for finances doesn't change any of this. Your attorney-in-fact will not have authority over property in your living trust. To avoid conflicts, it is usually best to have the same person managing both trust property and nontrust property if you become incapacitated. So normally, you'll name the same person as successor trustee and as your attorney-in-fact.

It's a good idea to name someone to take over as your attorney-in-fact in case your first choice can't serve or needs to resign. Your alternate would take over if your initial choice can't serve.

In California, your durable power of attorney is valid if you have it notarized or if you sign it in front of two witnesses. Some people feel most comfortable using both methods together, but you are legally required to choose only one.

When choosing a method, there's one important consideration to keep in mind. If your power of attorney grants your attorney-in-fact authority over your real estate, you should absolutely have your document notarized. Your attorney-in-fact will have to put a copy of your document on file in the county recorder's office (if your attorney-in-fact plans on doing something with the real property), and in order to record your document, it must be notarized.

If you wish, you can give copies of your durable power to the people your attorney-in-fact will need to deal with in banks or government offices, for example. If the durable power is in their records, it may eliminate hassles for your attorney-in-fact later because they will be familiar with the document and expecting your attorney-in-fact to take action under it.

If you're making a “springing” durable power of attorney, however, it may seem premature to contact people and institutions about a document that may never go into effect. It's up to you.

Be sure to keep a list of everyone to whom you give a copy. If you later revoke your durable power of attorney, notify each institution of the revocation.

There are two ways to revoke your power of attorney. You can:

• prepare and sign a document called a Notice of Revocation, or
  
• destroy all existing copies of the document.

The first method is always preferable, because it creates proof that you really revoked the power of attorney.