You have the power (maybe).

Financial powers of attorney allow you (the principal) to appoint someone you trust (the agent) to perform certain acts related to your financial affairs on your behalf.  These instruments have a variety of uses, but are often used in the estate planning industry in in conjunction with, or in lieu of, a trust or conservatorship to facilitate the administration of your financial affairs if you become incapacitated.

There are several types of financial powers of attorney (POA), primarily categorized by their terms.  It is very important to review the terms of the instrument and not rely on its title to determine its type.  We recently reviewed an instrument labeled as a “General Durable Power of Attorney” which was in fact, very limited in scope.  So that you understand what type of power you have we recommend you review your instrument and make sure you are comfortable with the answers to the following questions.

What is the Scope of Authority?

  • General Power of Attorney: Grants your agent broad authority to handle all your financial matters, including managing bank accounts, paying bills, selling property, and filing taxes. This is a comprehensive delegation of power, but it typically ends if you become incapacitated, unless specified as durable.
  • Limited (or Special) Power of Attorney: Grants authority only for specific, limited tasks or for a defined period of time. For example, you could grant a limited POA for a specific real estate transaction while you are out of town, after which the power ends. Or the term may be open-ended, but the authority granted may be limited to transfers from your name to your revocable trust, essentially allowing your agent to transfer assets to the trust without opening a conservatorship with the probate court.

What is the impact of Incapacity?

  • Durable Power of Attorney: This is a crucial type for estate planning because it remains in effect even if you become mentally or physically incapacitated. A durable POA can be general or limited in its scope, but its key feature is its continuity through incapacity, avoiding the need for court intervention.
  • Non-Durable Power of Attorney: This type automatically ends if you become incapacitated. It is generally used for specific, short-term situations when you are simply unavailable, such as an extended vacation or military deployment.

When is the Power of Attorney Effective?

  • Springing Power of Attorney: This type “springs” into effect only when a specified future condition is met, typically your incapacitation, which must be clearly defined in the document. This allows you to maintain control until it is absolutely necessary for someone else to step in, though determining the exact point of incapacity can sometimes cause delays.
  • Immediate Power of Attorney: This type is effective immediately, therefore there is no need to determine whether a future condition has been met, eliminating any delays or uncertainty as to whether it has been triggered.  This type of power is commonly used with older persons or persons already relying on an agent to perform certain acts.

Is the Succession of Agents consistent with your Trust and Will?

In addition to the named agent, the POA usually appoints successor agents, if the initial agent is unable or unwilling to serve.  If the successors are not consistent with your appointed fiduciaries under your will or trust, there is a potential for delay in administration, or worse, conflict between the named agent, personal representative and trustee.  To avoid this potential conflict the succession of agents should be the same as your succession of personal representatives and trustees.

What is the warning to Agent about?

Arizona law provides that an Agent who improperly uses a POA can be subject to criminal proceedings and potentially disinheritance.  The warning is designed to give the agent notice of these rules.  These rules make it important to keep accurate records of each transfer, what it was for and to minimize or eliminate any payments to the agent personally.  Reimbursement payments to the agent are often scrutinized in the future because it is not self-evident as to what the transfers were for.

Are you comfortable with the separately initialed provisions?

Certain provisions in a financial power of attorney are often initiated separately.  By initialing an enumerated power, the principal is acknowledging that the agent may use the power even though the agent may benefit from the transaction.

Conclusion.

There is no one size fits all for Financial Powers of Attorney.  The answers to each of the above questions must be consistent with your objectives and estate plan.  The best choice of provisions depends entirely on your specific needs and situation, and not just blindly signing a form without thought or intent.  Call DeAngelis Legal to have your POA and other estate planning documents reviewed to ensure your objectives are met.