A Power of Attorney is one of the most commonly used estate planning tools. Over the course of your lifetime you will likely execute at least one Power of Attorney (POA) and you will probably be named as an Agent in someone else’s POA. While a POA can be an extremely useful and flexible estate planning tool, it can also cause more problems than it resolves. A Lincolnshire estate planning attorney at Hedeker Law, Ltd. explains the biggest problem with a Power of Attorney
What Is a Power of Attorney?
A power of attorney, or POA, is a legal document that allows you (referred to as the “Principal”) to grant another person (the “Agent”) the legal authority to act on your behalf. The type and extent of the legal authority you grant to an Agent depends on the type of POA you execute.
General vs. Limited Power of Attorney
A general POA grants your Agent almost unlimited power to act on your behalf. This means that your Agent may be able to do things such as withdraw funds from your financial accounts, sell property and assets owned by you, and even enter into contracts in your name while the POA is in effect. Because of the broad authority you grant to an Agent when you execute a general POA it is imperative that you think long and hard before doing so.
A limited POA only grants to your Agent the limited, and specific, authority enumerated in the POA. For example, you might grant an Agent the specific power of attorney to act on your behalf at an upcoming auction for a plot of land you hope to purchase because the auction is scheduled for a date when you will be out of the state. In addition, parents of minor children frequently make use of a limited POA to grant a caregiver the authority to consent to medical care for a child, should it be needed, during the limited period of time that the parents are away.
What Does It Mean to Make a Power of Attorney Durable?
Historically, a power of attorney automatically terminated upon the death or incapacity of the Principal. The problem with that was that for many people, the entire point of executing a POA was that they wanted a loved one to have the authority to act for them in the event of their incapacity. If, however, the POA automatically terminates upon the incapacity of the Principal, executing the POA will not fulfill that purpose. With that in mind, the concept of a durable power of attorney began to evolve. A “durable” POA is simply a power of attorney that survives the incapacity of the Principal. Both a general and a limited POA can be made durable.
The Problem with a Power of Attorney
In theory, a Power of Attorney offers a way to grant someone you trust the ability to conduct business on your behalf and/or represent you in legal transactions. In practice, however, an Agent’s authority is rarely that easily recognized and honored. This is particularly true if you create a limited POA – which is generally preferred because of the broad authority granted in a general POA. It is virtually impossible to include each and every transaction your Agent may need to be involved in; however, using language that is too broad almost always causes a third party to be leery of honoring the Agent’s authority. For example, if you create a limited POA that gives your Agent the authority to “conduct financial affairs on behalf of the Principal” you can almost guarantee that any ban or financial institution will want clarification. Can the Agent withdraw funds from your account? Can the Agent sell your property? Can the Agent cash checks in your name? A bank doesn’t want to err on the wrong side with regard to an Agent’s authority. On the other hand, you can imagine how long the list would be if you tried to include every possible type of transaction your Agent is authorized to conduct – and even then you would still miss something.
Is There a Better Option?
While a Power of Attorney remains the best choice in some situations, there are often other estate planning tools that work better if your goal is to grant someone authority to make decisions and/or conduct business for you. Joint ownership, a revocable living trust, and advance directives are just a few of the other options available. Consult with your estate planning attorney to determine which tools work best for your needs.
Contact a Lincolnshire Estate Planning Attorney
For more information, please join us for a FREE estate planning seminar. If you have additional questions or concerns relating to a Power of Attorney, contact an experienced Lincolnshire estate planning attorney at Hedeker Law, Ltd. by calling (847) 913-5415 to schedule an appointment.