Financial Powers of Attorney

by  Michael P. Cannady

There may come a time in your life that you can no longer handle your own financial affairs due to disability or incapacity. This may be something that happens gradually, or it may happen all at once. In either event, if you have planned ahead, you will have named someone to handle your financial affairs for you. If you don't have a financial power of attorney and you become incapacitated, someone will likely end up having to ask the court to appoint a conservator for you. Conservatorship proceedings can be expensive and embarrassing. Your loved ones must ask the court to rule that you cannot take care of your own affairs, and court proceedings are matters of public record. Your relatives may fight over who is to be named as your conservator, which will cause the expenses to be even greater. Then, after someone is appointed as your conservator, that person will likely have to be bonded (which is an additional expense), and will be required to account to the court every year in relation to all of your assets, income and expenses.
 
Naming someone to handle your financial affairs for you is accomplished with a financial power of attorney. The person you name, who is referred to as your attorney-in-fact (although he or she is generally not an attorney), can act on your behalf to pay bills, write checks, make investment decisions, buy or sell real estate, file taxes, and handle your other financial affairs. You may also want to appoint an alternate who would be authorized to act if the first attorney-in-fact died, resigned or became incompetent.
 
It is very important that you have complete trust in the person you are appointing, as you are giving them a great deal of power. Although the person you appoint does have a duty under the law to act in your best interests, and can be held legally accountable for failing to do so, recovering funds from someone who has misused them may be difficult, if not impossible. If you do not have complete faith in the person you are appointing, you are probably better off allowing the court to appoint a conservator for you.

Durable vs. Nondurable. Financial powers of attorney can be durable or nondurable. A durable financial power of attorney allows your attorney-in-fact to act on your behalf even if you later become incompetent. Of course, this is the main purpose of most financial powers of attorney, so most financial powers of attorney are drafted so they are “durable.” Drafting a financial power of attorney to be “durable” is simply a matter of including language that basically states the financial power of attorney becomes effective, or remains in effect, upon incompetency or disability. A nondurable financial power of attorney becomes void if you become incompetent or disabled.
 
Springing vs. Effective Immediately. Financial powers of attorney can also be springing or effective immediately. A springing power of attorney “springs” into effect when you become incompetent or disabled. Your attorney-in-fact has no authority until that occurs, and generally a certificate from a doctor stating you are incompetent or disabled must be attached to the power of attorney before it becomes effective. A financial power of attorney that is effective immediately, in contrast, gives your attorney-in-fact the authority to act anytime after the power of attorney is signed.
 
Some financial powers of attorney are both springing and effective immediately. Many people will name their spouse as their attorney-in-fact, and make that appointment effective immediately, and then name someone else (possibly a child) as the alternate attorney-in-fact, and make that appointment effective only upon incapacity. That way one spouse can handle the other spouse’s financial affairs without having to obtain a doctor’s certificate, while the alternate attorney-in-fact would only be allowed to act after getting that certificate.
 
Joint Tenancy and Trusts. Some people will assume they do not need a financial power of attorney because all of their property is held in joint tenancy or in a trust. This is not true. First of all, if you hold your property in joint tenancy with your spouse, and you are incompetent and your spouse dies before you do, there is no one else authorized to sign in relation to that property. Also, there are many things that have to be signed that are not tied to a specific asset. So while all of your bank accounts and real estate may be held in joint tenancy or living trust, that does not authorize your co-tenant or your trustee to sign tax returns, forms relating to insurance or social security, or a whole host of other things, on your behalf. Finally, there is a common misconception that just because you are married to someone, you have the right to sign for your spouse and otherwise handle his or her financial affairs. This is not true. Each spouse has his or her own legal identity and the only way one spouse can act on the other’s behalf is if the authority for such has been given, either through a financial power of attorney, or by a Court through a conservatorship proceeding.
 
Although you can have a financial power of attorney drafted as a single document, generally it is part of a complete estate plan which includes a trust and/or a will, financial power of attorney, health care power of attorney and a living will. These documents are very important and if you do not currently have them in place, you should take immediate steps to have them prepared by a qualified estate planning attorney. I would be happy to discuss your estate planning needs with you at any time.
 
We would be glad to assist you in avoiding these common employer legal mistakes.

(Article appeared in Adams Jones September 2011 Newsletter)