Planning for the Unexpected: The Role of the Power of Attorney

We hear it quite often. “After I die, my power of attorney can keep paying my bills, right?”

The answer is, “No”, but the confusion is understandable. Our clients hear (or, read about) so many different roles when they visit us or attend our seminars. What is a fiduciary, a trustee, an executor, a personal representative, or an agent under a power of attorney? What are the differences?

In this article, we want to address the General Durable Power of Attorney (the “GDPOA”) in the context of our client’s estate plans. We will highlight what it is, and when it can and can’t be used. We will also give you some pointers along the way.

The General Durable Power of Attorney—What is it?

The GDPOA is a document that the client signs appointing someone to act in their place for financial purposes.

For example, a client may go overseas and want someone stateside to be able to manage their assets and pay their bills. If they have executed a GDPOA, then the person appointed in the document could manage their affairs while they were gone. More commonly, our clients sign GDPOA to plan for their incapacity, whether that incapacity could come about due to a car accident or because of dementia. The “Durable” in the title means that the document is effective even if the client becomes incapacitated.

Typically, the person appointed under a GDPOA is able to stand in the client’s shoes for all financial matters. Here are just a few tangible ways this plays out:
1. They can access the client’s bank account to pay for bills.
2. They can manage the client’s portfolio.
3. They can speak to the client’s utility company.
Anything that needs to be done for the client, financially, the Agent can do. Which is why the choice of the agent must be taken with care.

Who should I appoint?

Married couples almost always appoint each other “first in line”, meaning, if the spouse becomes incapacitated, the other spouse will be able to step into their shoes. For those with children, often a child will be listed as a successor, meaning second or third in line. A knowing glance between spouses often signals which child is “the responsible one”. If there are no children who can act, then a trusted friend, confidant, or significant other can be appointed.

The overarching point here is that you have to implicitly trust the person you are appointing. A good rule of thumb might be this—would you be willing to give your checkbook to this person for a month and trust that they would only spend money for your benefit? If the answer is yes, then you may have your person. If your answer is no, you may want to re-think it.

When is it effective? Or, in other words, when can your agent act on your behalf?

The client has two options here: springing or immediate.

The client can choose to make the GDPOA a “springing” power of attorney. In that situation, the GDPOA “springs” into effect at some point in time after the document is executed. Typically, it is when the client’s doctors have written a letter saying the client is no longer able to handle their finances. If the doctors write that letter, then the agent has the authority to act.

The client also has the option of signing an affidavit that then makes the GDPOA “spring” into existence. There are pros and cons to this approach. On the one hand, the client keeps control over when the agent can act. On the other hand, what if the client’s doctor is not available and there is an emergency? Or, what if the client is incapacitated and cannot sign the affidavit?

The other option is to make the GDPOA effective immediately, meaning the agent can act for the client right after the document is signed. The pros and cons of this approach are perhaps obvious. On the one hand, the client does not need to worry about “what if” scenarios, and, in the event of an emergency, the agent can act. On the other hand, the client is granting the agent a great deal of authority immediately.

When does the power of the GDPOA end?

The agent’s ability to act on the client’s behalf under the GDPOA ends when the client dies. It is then that the other roles will jump: a trustee, an executor, or a personal representative. Often it is the same person. But it is crucial for that person to know what “hat” they are wearing because they come with different responsibilities and duties.

Important to note—the client can also revoke the GDPOA. The client’s death is not the only thing that can end the agent’s authority to act. Revoking the GDPOA has to be done correctly and often there are a few steps that need to be taken.

Caution: Everyone needs a GDPOA.

One final note of caution. While our clients who are a bit more experienced intuitively understand the need for a GDPOA, our younger clients often do not. That is a big misconception.

Everyone needs a GDPOA. Getting sick or being in a car accident can happen to anyone. And if it happens and you don’t have a GDPOA, it is possible you will need to have a guardian appointed for you.

A guardian is someone the state appoints for you, is given your rights, and he or she is required to report to the court each year regarding the management of your assets. You hope the state appoints someone you know, but it may not. For example, if a client’s children cannot agree on who should serve, the court may appoint a professional guardian that no one knows.

Plan for your own incapacity. It’s necessary

The attorneys at Strauss Attorneys, PLLC have professional experience and wisdom to deal with these issues every day. We stand ready to work with you and help you navigate through these difficult choices. They are all important, not just for you, but for those who will take care of you when and if you need it.

Stay Tuned

In the next blog post, we will consider a related document—the Health Care Power of Attorney.