What is a Durable Power of Attorney and who needs one?

This article will answer the question of what is a Durable Power of Attorney.

It is important to note that there are several types of powers of attorney. I’ll cover them and get into more detail of how they relate to estate planning.

General Power of Attorney.

This is a power of attorney that someone signs giving another person the authority to do anything that they need to such as manage your assets, sign contracts and pay bills.

The general power of attorney is void if you become incapacitated. If you become mentally incapacitated like alzheimer’s then the general power of attorney is no longer effective. There must be special wording in the document that says that it survives incapacity otherwise it will not and will be voided at that point.

You’re appointing an agent to act on your behalf and you decide how much authority you want to grant that individual(s). Things like handling transactions, paying bills, negotiating contracts, hiring, firing, managing the business, stocks, bonds, sales, etc. All those types of items can be granted to an agent under a power of attorney.

Limited Power of Attorney.

A limited power of attorney means that you’re specifying only the exact acts that you want your agent to do for you. Let’s say you are traveling to Europe and you have to close a real estate escrow. With a limited power of attorney you can authorize a person to sign the closing papers.

With a limited power of attorney you could just say I want you to sign the closing papers and limit it to that act. A limited powers of attorney is also ineffective on incapacity unless they have that special wording.

Durable Power of Attorney

The next type of power of attorney is more important for estate planning and it’s called a durable power of attorney. No, it’s not printed on tough paper like cardstock, what it means by durable is that it’s still effective if a doctor renders an opinion that you are mentally incapacitated.

The document’s prepared and the effective date is up to you. You can either have the durable power of attorney effective right away or you can have it springing which means when a doctor determines you’re incapacitated that’s when it becomes effective. Those are the two types of options. It’s authorized under California Probate Code 4129.

Advanced Health Care Directive

An advanced health care directive says that you’ve granted authority for someone else to make medical decisions for you. If you become incapacitated and can’t talk to your doctor the doctor is not going to talk to you or another person, not even your spouse unless you have an advanced health care directive.

When a person becomes incapacitated, without a durable power of attorney, it causes a problem because banks and financial institutions won’t recognize anyone else and being married doesn’t stop the problem. They will require that you go to court and obtain a conservatorship. Someone will be appointed by the court. They will be required to do accounting every other year. It turns into a lot of legal work that could have been avoided with a simple document prepared as part of an Estate Plan.

Why should you have a Comprehensive Estate Plan in place?

If you have a comprehensive estate plan with a revocable trust, a will that pours over into the trust, a durable power of attorney for asset management and an advanced health care directive if you become incapacitated two things happen.

1. You are removed as trustee of your revocable trust and the successor trustee takes over and at that point your advanced durable power attorney for financial management takes over.
2. Any assets that are outside of your trust are managed by the DPOA and any assets in your trust are managed by the successor trustee.

Normally in an estate plan we have those two roles be the same person. You can elect what rights you give to your agent and this process is not to be confused with a partnership where you have liability for another person. The agent is a fiduciary and can only take acts or do things that benefit you. It’s a requirement by law that in order to have a valid durable power of attorney it has to be executed in one of two ways: either a notary watches as you sign the document or you have it signed before two witnesses in the same room at the same time. This is required under probate code 4121. We always notarize the durable power of attorney for asset management because when you’re dealing with banks and financial institutions you don’t want to give them any more reason to not cooperate with you and your estate plan.

Can you revoke your attorney in fact/power of attorney?

Yes, at any time. Keep in mind it’s better if you do it in writing if it’s notarized.

Can you name more than one agent under a durable power of attorney?

Yes, you can. You can name alternates. Let’s say you have a brother and a sister you could name them both. One requirement under California law is that you must have the agent sign the durable power of attorney document before they take any action within the state. You can either have them sign it now or if your durable power of attorney is springing on incapacity when they start acting as your agent they can sign at that time.

The durable power of attorney for asset management should include all matters including tax if you authorize that in your document however the IRS is somewhat particular all the time and it would be preferable if you had an IRS form 2848. This is the IRS attorney in fact form for use in doing tax returns. The way that an agent signs under a durable power of attorney or attorney in fact is they sign your name and then it says by their name comma, attorney in fact. This way they’re not forging your signature or doing something like that.

You can also grant your agent the authority to delegate to another person to act if they’re unable to act for you for a certain period of time. Another thing that we always do is name a successor and an alternate successor to the agent position and have a mechanism so beneficiaries or family members can elect another person to act as agent if those other agents are no longer available.

What is a Durable Power of Attorney and who needs one?

Hopefully this article has answered that question!

If you have any questions you can contact Rex Crandall Firm by calling 925-934-6320 or click here to send us a message!