A power of attorney is a document wherein one person grants the authority to another to act on their behalf and is an essential component of a complete estate plan. The power of attorney can be a general power of attorney that grants broad authority to act or limited so that action is only authorized for specific circumstances. Key terms are:
- Principal – The person who grants the authority
- Agent – The person who acts on behalf of the principal
- Durable Power of Attorney – A power of attorney that is effective or continues if the principal becomes incapacitated, otherwise the authority terminates upon death of the principal
- DPAF – A durable power of attorney used for financial management
- PHAC – A power of attorney used for health care decisions when anadvanced health care directive is not used
Powers of attorney can take many different forms with the most widely used being the statutory durable power of attorney which is created and governed by California law for use in the financial management of your property. It does not authorize the agent to make health care decisions. As it is widely recognized it is perhaps the easiest to use as most third parties will recognize and understand the law supporting it. The statute allows the principal to grant authority under selected terms with the statute providing detailed provisions regarding the authority authorized with each power. Some of the most common powers granted in the statutory durable power of attorney are:
- Real property transactions
- Tangible personal property transactions
- Stock and bond transactions
- Banking and other financial institution transactions
- Business operating transactions
- Estate, trust and other beneficiary transactions
- Retirement plan transactions
- Claims and litigation
- Tax matters
While the statutory durable power of attorney can be used to grant broad powers the statute only allows certain acts if they are expressly authorized in the power of attorney and it is important that you consider each of them and how they relate to your estate plan. Those actions are:
- The power to create, modify or revoke a trust.
- Use the principal’s property to fund a trust that was not created by the principal or under the principal’s direction.
- Make or revoke a gift of the principal’s property.
- Disclaim property to be received by the principal.
- Create or change survivorship provisions in property owned by the principal.
- Add or change any of the persons designated to receive property from the principal.
- Make a loan to the agent.
When contemplating a power of attorney your most important decision is who to appoint as the agent. Some of the factors to consider are:
- Is the person willing to act on your behalf and in your best interests.
- Is the person someone that you trust.
- How financially responsible is the person with their own finances.
- Is the person disqualified to act under the law, for example a care custodian, the drafter of the power of attorney or someone related to the drafter.
- Should an alternate be appointed if the person is unavailable or refuses to act.
Having a carefully drafted and well thought out power of attorney is an essential piece of your plan and can go a long way towards eliminating difficulties in the event of either a temporary or long lasting incapacity.