What is a durable power of attorney?
A durable power of attorney is one of the most important legal documents you can have in place to protect your financial interests. This powerful document allows you to name someone you trust to make financial decisions on your behalf if you become unable to do so yourself.
Understanding Durable Power of Attorney
A durable power of attorney (DPOA) is a legal document that gives another person the authority to handle your financial matters. The person you choose is called your “agent” or “attorney-in-fact,” and they can manage tasks like paying bills, managing investments, selling property, and handling bank accounts.
What makes a DPOA “durable” is that it remains valid even if you become mentally incapacitated. This is different from a regular power of attorney, which becomes invalid if you lose the ability to make decisions for yourself.
Why You Need a DPOA
Life can be unpredictable. Accidents, illnesses, or conditions like dementia can strike at any age. Without a durable power of attorney in place, your loved ones might need to go through a lengthy and expensive court process to gain the authority to manage your finances.
Having a DPOA ensures that:
- Your bills get paid on time
- Your investments are properly managed
- Your family can access funds for your care
- Your business continues to operate
- Important financial decisions can be made without delay
Types of Financial Powers You Can Grant
When creating a financial POA, you can choose to give your agent broad or limited powers. Common powers include:
- Banking: Opening and closing accounts, depositing checks, and transferring funds
- Real Estate: Buying, selling, or managing property
- Investments: Managing stocks, bonds, and retirement accounts
- Taxes: Filing returns and dealing with tax matters
- Insurance: Managing policies and filing claims
- Government Benefits: Applying for and managing Social Security or Medicare
Choosing the Right Agent
Selecting your agent is perhaps the most critical decision in creating a DPOA. This person will have significant control over your finances, so choose someone who is:
- Completely trustworthy
- Financially responsible
- Organized and detail-oriented
- Willing to take on the responsibility
- Able to make difficult decisions
Many people choose a spouse, adult child, sibling, or close friend. You can also name multiple agents who act together or separately, or name backup agents in case your first choice is unavailable.
When a DPOA Takes Effect
There are two main types of durable power of attorney documents:
Immediate DPOA: Takes effect as soon as you sign it. Your agent can start acting on your behalf right away, even while you’re still capable of making your own decisions.
Springing DPOA: Only becomes effective when a specific event occurs, usually when a doctor certifies that you’re incapacitated. While this might seem safer, it can cause delays when your agent needs to prove your incapacity.
Creating Your DPOA
While you can find DPOA forms online or at office supply stores, it’s often wise to work with an attorney who specializes in elder law or estate planning. They can ensure your document:
- Meets your state’s legal requirements
- Includes all necessary powers
- Contains appropriate safeguards
- Works well with your other estate planning documents
Most states require the document to be signed in front of a notary public, and some require additional witnesses.
Protecting Yourself from Abuse
While a DPOA is essential for incapacity planning, it’s important to include safeguards against potential abuse. Consider these protections:
- Require your agent to keep detailed records
- Name a second person to receive account statements
- Limit certain powers, like gifting or changing beneficiaries
- Require approval from another person for major transactions
Reviewing and Updating Your DPOA
Your durable power of attorney isn’t a “set it and forget it” document. Review it regularly, especially after major life changes like:
- Marriage or divorce
- Death of your chosen agent
- Major changes in your financial situation
- Moving to a different state
- Changes in your relationship with your agent
The Bottom Line
A durable power of attorney is a cornerstone of good incapacity planning. By taking action now while you’re healthy and capable, you can ensure your financial affairs will be in good hands if you ever need help managing them. Don’t wait until it’s too late – consider creating your DPOA as part of a comprehensive estate plan that protects both you and your loved ones.
