The durable power of attorney, like the living will and durable power of attorney for health care (or health care proxy), is an integral part of an estate plan and will help you provide for the possibility of future incapacitation or incompetence. While the living will and durable power of attorney for health care provide for matters relating to your health and medical decision-making, the durable power of attorney provides for your personal and financial affairs. Unlike a general power of attorney that terminates upon the principal's physical or mental incompetence, a durable power of attorney remains in effect through such periods of incompetence or incapacity and terminates only upon the principal's death or upon a specified time or event.
A durable power of attorney protects your property and finances during periods of incapacity or incompetency by allowing you, the principal, to appoint one or more individuals to act as your agent (or attorney-in-fact) to handle these matters on your behalf. Usually, a family member or a trusted individual is chosen as an agent. It should be kept in mind that the person you choose as an agent will have the same authority over your property that you have. Most durable powers of attorney are available on preprinted forms and offer you the choice of the amount of power you wish to bestow upon your agent. Depending on your individual circumstances, you may wish to grant your agent the broadest range of powers or you may wish to limit your agent's powers, for example, to the sale of a particular parcel of real property.
Although the durable powers of attorney are available on preprinted forms, they may not cover every circumstance relevant to your situation. For example, if you have developed a gift giving plan to take advantage of the annual gift tax exclusion of $10,000 per donee and you wish this pattern to continue, then this power must be specified in writing. Some of the preprinted forms may already provide for this power, but if not, it should be added. It should be noted that the rules of each state vary with regard to validity of the power to make gifts. In addition, you may wish to grant your agent the power to deal with the IRS or state taxing authorities and to transfer property to a trust, such as a living trust.
Each state has its own rules and requirements regarding durable powers of attorney. In order to be valid, your durable power of attorney must be drafted and signed in accordance with the laws of the state in which you are domiciled. A durable power of attorney may not be effective for property outside of the state in which you are domiciled. In this event, you may need to implement additional estate planning devices, such as a living trust.
A durable power of attorney becomes effective on the date it is signed and terminates upon the death of the principal or upon a specified date or event. Since the agent has the authority to act immediately, some people are not comfortable with a durable power of attorney. In this event a springing power of attorney is available. Unlike a durable power of attorney, the springing power of attorney becomes effective upon a specified date or the happening of a specified event. The springing power of attorney will continue to be effective until the death of the principal or upon a specified date or occurrence. The triggering event can be the physical incapacity or mental incompetence of the principal or it can be any event or date the principal may choose. However, there are potential problems that should be considered which may cause unnecessary delay at a time when prompt action is required, such as the determination of the principal's incompetence. Therefore the triggering event must be carefully chosen and planned. For example, the document may specify who is to make the determination of incompetence, the names and number of doctors to be consulted, and the documentation necessary to substantiate the determination of incompetency.
Durable powers of attorney remain useful tools in all types of estate plans. However, it should be noted that some institutions may require that the power of attorney be current and be on their own form.