The purpose of a financial Power of Attorney is to allow a third party to step into your shoes with regard to the management of your assets. If you are unable or unwilling to handle certain financial tasks, you might want a legal mechanism to be able to delegate that authority to an agent. Although the original idea was of limited scope, the concept of a Power of Attorney has expanded into many different renditions that serve a myriad of purposes.
Special v. General
A “Special” Power of Attorney gives your agent limited authority to only perform certain specified tasks. For example, if you need to sign a loan document by a certain date but you know that you will be on vacation during that time, you might execute a Special Power of Attorney that only gives your agent the power to sign that specified loan document on your behalf. The Special Power of Attorney will not give your agent any other authority over your financial affairs.
A “General” Power of Attorney gives your agent expansive authority to perform numerous or all financial tasks on your behalf. Many common General Power of Attorney documents use vague broad terms such as “Real Estate Powers” and “Banking Powers.” It is increasingly important to specifically spell-out what you mean by such broad terms. For example, does “Real Estate Powers” include the power to refinance? Does “Banking Powers” include the ability to open or close a safe deposit box? It is better to flesh out such powers in detail to make sure that financial institutions and other third parties will be comfortable in giving access to your agent to carry out a wide array of tasks on your behalf.
Regular v. Durable
Historically, the concept of a Power of Attorney was to give an agent the authority to act essentially as your clone: a person who can pretend to be you. The original concept was that if you were to ever lose the mental capacity to make financial decisions, the Power of Attorney would necessarily cease to exist. The original thinking was that you would not want someone to be able to act on your behalf if you did not have the ability to monitor what your agent was doing and if you did not have the ability to revoke the power should you change your mind.
However, as the Power of Attorney concept developed, it became clear that there is a benefit to allowing somebody to act on your behalf should you become mentally incapacitated. In fact, this might be the most crucial time to give an agent the authority to manage your financial assets, otherwise your bank accounts and other assets would “freeze” and would be very difficult for your loved ones to access. The concept of a Power of Attorney that continues to be effective after your incapacity is referred to as a “Durable” Power of Attorney.
Immediate v. Springing
A Power of Attorney that gives your agent the authority to manage your assets as soon as you sign the document is referred to as an “Immediate” Power of Attorney. However, you might decide that you like the idea of allowing an agent to act on your behalf if you become incapacitated, but you do not have the need or inclination to allow the agent to have authority over your financial assets right now, when you still have capacity.
A Power of Attorney that only becomes effective upon your incapacity is known as a “Springing” Power of Attorney. The agent’s authority “springs” into action upon your loss of capacity. Unless and until you lose capacity, your agent has no authority over your assets. A good Springing Power of Attorney should outline a specific procedure for demonstrating your incapacity such as obtaining a letter from your attending physician that states that you do not have the mental ability to manage your financial affairs.
A “Hybrid” Power of Attorney will start off as a Springing Power of Attorney, but will allow you to sign an additional page that converts the Springing Power of Attorney into an Immediate Power of Attorney. This hybrid option allows you to hedge your bets: right now you might not be comfortable in giving your agent immediate authority to act, but in the future, upon getting older or ill, for example, you might change your mind and decide to give your agent immediate authority to act on your behalf. The idea behind the Hybrid Power of Attorney is to give you an additional option.
Many of these types of Power of Attorney concepts are combined. For example, you might execute a Special Immediate Power of attorney if you want to give someone a (1) specific power (2) to act immediately but only (3) during your capacity. Or you might want to execute a General Durable Springing Power of Attorney if you want your agent to have (1) expansive powers (2) that endure after your lose capacity and that (3) only give your agent the authority to act upon your incapacity.
Although Power of Attorney documents can be quite helpful, it is often more efficient if you bestow such powers upon your agents through a Revocable Living Trust. If you have an asset that is titled to a Revocable Living Trust and you want to give an agent immediate authority over such an asset, you might need to amend your Trust in addition to executing a Power of Attorney.
A Health Care Power of Attorney, which is often part of an Advance Health Care Directive, gives an agent the authority to make health care decisions on your behalf. This is a different concept than a financial Power of Attorney and requires a separate document.
A qualified attorney can help you navigate these various options for appointing an agent to step into your shoes.
KRASA LAW is located at 704-D Forest Avenue, PG, and Kyle can be reached at 831-920-0205831-920-0205.
This article is intended for general information only.
Reading this article does not create an attorney-client relationship. You should consult an attorney licensed to practice law in your community before acting upon any of the information contained within this article.