A power of attorney is a powerful tool in the estate planning tool kit. But it is essential that it is drafted correctly to be effective and consistent with the principal’s intent. A power of attorney is a written document in which a principal gives a designated individual the authority to perform specific actions on the principal’s behalf. The individual nominated by the principal is called the attorney-in-fact. Once the principal becomes incapacitated or disabled, the power of attorney ceases to be effective, and the attorney-in-fact is relieved of any obligations. Under those circumstances, the power of attorney would be considered “nondurable”.
To prevent the power of attorney from terminating upon the principal’s incapacity or disability, the document must be made “durable.” This is arguably one of the most beneficial features of the document as an estate planning tool, because a durable power of attorney remains valid even after the principal loses capacity. This means the attorney-in-fact may continue to act on behalf of an incapacitated or disabled principal. Once executed, a durable power of attorney is valid until the principal revokes the document or passes away. A principal must have capacity to create or revoke a durable or nondurable power of attorney.
Two areas powers of attorney are commonly utilized for are healthcare and finances. A healthcare power of attorney gives the attorney-in-fact the authority to make decisions on the principal’s behalf regarding medication, life support, and artificial hydration and nutrition. A financial power of attorney gives the attorney-in-fact specific powers to manage the principal’s finances. This may range from collecting retirement benefits to paying bills and filing taxes. Although nondurable powers of attorney are not useful as an estate planning tool because it expires upon incapacity, it can work as a financial tool that grants the attorney-in-fact authority to manage the principal’s investments.
In legal terms, an individual loses capacity when he or she lacks the physical or mental condition to evaluate information or communicate decisions. A disabled person is often referred to as a person who is unable to manage their regular affairs due to a physical or mental condition. This could include conditions that restrict the ability of the individual to perform normal daily tasks or threaten the individual’s ability to live independently. If a court finds a principal incapacitated or disabled, the nondurable power of attorney will terminate.
Each state has its own drafting requirements to create a durable power of attorney. The legal provisions, number of witness signatures, and notary requirements may differ between states. If a power of attorney fails to comply with the state laws that dictate whether the document is durable, it may inadvertently create a nondurable power of attorney or cause the document to be completely invalid. This could lead to a significant issue if the principal intended to create a durable power of attorney and relies on that security. Therefore, it is imperative that your drafting attorney meets the requirements prescribed by state law. Regular estate planning reviews also help ensure your documents match your intentions.
