THE DURABLE POWER OF ATTORNEY
— ESSENTIAL PROTECTION FOR
YOU AND YOUR FAMILY
The prospect of becoming incompetent and no longer able to make decisions and care for one’s self is extremely troubling. Yet, most people focus on planning for the distribution of their assets on death rather than planning for long-term incapacity. As you may have already observed, long-term incapacity can be even more devastating than death, both emotionally and financially.
An essential tool for dealing with incapacity is the Durable Power of Attorney (also referred to in this article as “DPOA”). In this document, you (the “principal”) give someone you trust (referred to as your “agent” or “attorney-in-fact”) the legal authority and power to act on your behalf. While all states permit you to make a DPOA, the rules will vary somewhat from state to state. This article is based upon Florida law and is intended to provide general information.
Here are some essential things that you should know about durable powers of attorney:
1. When does the Durable Power of Attorney become effective and when does it terminate?
Powers of attorney become effective immediately and terminate upon revocation or upon the death of the principal. Since 1974, Durable Powers of Attorney remain in effect even if you become incapacitated. They are referred to as “durable” because they endure during incapacity.
Before the law authorizing DPOA’s, powers of attorney had little value because they became ineffective when your family needed them the most, i.e., when you became incapacitated. Unless your assets were managed in a living trust, your family would usually need a court appointed guardian of the person and property to deal with your incapacity.
2. What if I do not want the DPOA to be effective immediately?
In Florida, the authority to act under a DPOA may be conditioned upon the lack of capacity to manage property. This type is known as a “Springing Durable Power of Attorney”. Although an attractive concept, the Springing DPOA is not widely used. Sometimes an individual who is uncomfortable with the DPOA being immediately effective will place it in escrow with his attorney. The DPOA is then released to the agent only upon proof that the individual is incapacitated.
3. Will banks and brokerages accept the DPOA?
Florida law has simplified the process of dealing with banks, brokerages and other third parties. Traditionally, banks have been reluctant to accept DPOA’s. Banks feared lawsuits by account holders based upon the release of funds on the signature of an agent who no longer had authority. Florida law protects banks from being sued in such cases, provided they follow certain rules. To add teeth to requests for banks and other third parties to accept DPOA’s, your agent can recover attorney’s fees and court costs if he or she must sue a bank that refuses to accept your agent’s authority.
4. What happens to your account if your agent takes money after the DPOA has been revoked?
If the bank acts in good faith on the authority granted to the agent under the DPOA, the principal (you) will suffer the loss. Therefore, if you ever need to revoke a DPOA, it must be handled by an attorney who will instruct you on how to revoke it and how to give notice to anyone who might inadvertently rely upon it. Of course, the agent, would be liable to the principal for anything that he or she might do without authority.
5. What types of things will my agent be able to do for me?
You can limit the authority granted in the Durable Power of Attorney to particular acts, like selling your house. Alternatively it is usually broader in scope, allowing your agent to sign checks, pay bills, and deal with the IRS.
6. Can a DPOA be used for tax planning and Medicaid planning?
Absolutely yes, but few people need estate tax planning, and commonly drafted estate tax planning provisions in your DPOA may prevent your agent from doing Medicaid Planning. Elder Law Attorneys preserve your ability to do Medicaid Planning. They draft DPOA’s with tax planning clauses that do not conflict with your ability to preserve your assets when faced with the need for nursing home care.
7. What will happen if my agent cannot do Medicaid Planning for me?
To ensure that your agent has the authority necessary to establish Medicaid eligibility, you must also give him the power to modify trusts and make gifts, as well as other specific powers that will protect you if you need nursing home care. These clauses are very complex and must be carefully drafted to comply with federal and state law. Absent these powers, your family may be forced to make the choice between spending all of your assets on nursing home care or having a guardian appointed who will ask the Court for permission to do Medicaid Planning.
8. Why does the DPOA have to be so long and detailed?
Florida case law has strictly construed the language in DPOA’s. Therefore, unless the DPOA specifically authorizes a particular act, the agent will not have authority to perform it.
9. Are there any limitations on what I can authorize my agent to do?
Yes. Among other things, he or she cannot perform fiduciary acts, vote for you in an election, or change your will.
10. Who can serve as my attorney in fact?
The first DPOA law limited those who could serve to the principal’s spouse, parent or child. Eventually, these restrictions were removed. Today, any adult and most financial institutions with trust powers are permitted to serve.
11. How do laws regarding DPOA’s affect snowbirds?
If you spend a significant amount of time in more than one state, you should consult with lawyers in each state to be sure that your documents will be enforceable wherever they are needed. Sometimes it is best to execute documents in both states. I regularly consult with lawyers in other states to ensure that our mutual clients are properly protected.
The Durable Power of Attorney is a private and relatively inexpensive way to protect your finances and dignity in the event of incapacity or incompetency. Never rely on forms that you may find in office supply stores, books or on the Internet. They will rarely, if ever, provide the protections that you need most and could cost you tens or even hundreds of thousands of dollars. If you do not have a Durable Power of Attorney, or if yours was not prepared and executed properly, your family may have to hire a lawyer to petition the probate court for appointment of a guardian to handle your affairs. This process, in which the senior is declared legally incompetent, is lengthy, expensive and humiliating.
For additional information or to schedule an appointment, call Boynton Beach Florida Elder Law & Estate Planning Attorney Martin H. Cohen at 561-880-8223.