Durable Power of Attorney
A durable power of attorney is the single most important legal document that anybody will sign
in their lifetime. When speaking with clients regarding powers of attorney, I oftentimes use the
analogy of a copilot. The idea is that you are the pilot of your life. You are in control of things.
You make the decisions whether you go up, whether you go down, where you land. You are the
person in charge. However, there is a reason why there are two seats in the front of every
airplane. One seat is for the pilot, the person in charge. The other seat is for the copilot, the
backup plan just in case something happens to the pilot. The copilot is the person who, if
something happens to the pilot and he cannot fly the plane, can continues to fly, and makes sure
that there's a safe landing and that we don't have any dramatic, fatal endings. The power of attorney is the document that appoints the copilot.
No one should be flying solo. If something were to happen to you someone will need to step in
and make decisions, oftentimes critical decisions, with regard to your situation, including your
finances. If there is no copilot appointed, no power of attorney, then there is a vacuum of control. There is nobody to fly the plane. In these circumstances, the only solution available to fill that position is to go through a guardianship proceeding. A guardianship is basically where you go to the court and prove that the person is incapacitated. This often requires lawyers for the person that we are trying to prove incapacitated, lawyers for the people that are asking the court for the guardianship, lawyers for each person that wants to be a guardian, and as you can see, pretty soon we have a bunch of lawyers charging a bunch of fees to appoint somebody to be copilot.
The process can be time consuming taking several months. During that time nobody is flying the
plane.
The simple solution to avoid all that mess is to tell us in advance, in a power of attorney
document who you want to step in and be you if for whatever reason you cannot be you. The
power of attorney document must obviously be in place before hand. Once you have lost
capacity you cannot sign a power of attorney. So, now is a very good time to take action and get
that power of attorney in place.
Lastly, not all power of attorney documents are created the same. Every day I review powers of
attorney, including ones drafted by lawyers, that are fatally flawed. The biggest failure point is a
lack of specificity. Powers of attorney must explicitly state each and every thing the person can
do.
The five most common powers we find routinely missing in power of attorney documents are:
- The ability to create trusts, including irrevocable trusts.
- The ability to make unlimited gifts, including making gifts to the power of attorney.
- The ability to manage tax qualified plans such as IRA and 401k plans.
- The ability to convey the “homestead” including the ability to waive constitutional homestead interest.
- The provision for an alternate power of attorney.
And one other thing power of attorney documents should be newer than five years. If your power
of attorney document is missing any of the above or is older than five years, it must be redone
now.
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