Powers of attorney may deal with property and financial matters or with health care decision-making, but these two types of Powers of Attorney are typically found in two separate legal documents. This section deals with Financial/Property Powers of Attorney. Please see our Health Care Powers of Attorney page for additional information.
In general, a Power of Attorney is a legal document that allows a person (called the “principal”) to appoint another person (called the “attorney-in-fact” or “agent”) to act on behalf of the principal. The laws governing this relationship can be nuanced and complex, but in general the agent is only authorized to act in the principal’s best interest and may only perform actions that are specifically listed in the Power of Attorney document.
The powers that can be listed in the Power of Attorney can be limited to a specific act, for example, appearing for the principal at a real estate closing. Or they can be broad and sweeping, allowing the agent to do virtually anything the principal himself could do. The Powers of Attorney used in estate planning are usually of the second type. This is because the main purpose of the Power of Attorney is to name an agent who can manage the principal’s property in the event the principal himself becomes incapacitated. The agent will be able to collect debts, pay bills, and otherwise preserve and manage the principal’s assets while the principal is unable to do so.
Because planning for incapacity is the main purpose of a Power of Attorney in estate planning, the Power of Attorney must be “Durable”. By default, a Power of Attorney becomes void at the moment the principal becomes incapacitated. Obviously, a void Power of Attorney would be useless for estate planning. A Durable Power of Attorney is one that specifically states that it does not become void when the principal becomes incapacitated.
Some Durable Powers of Attorney are called “Springing” Powers of Attorney. A Springing Power of Attorney is one that is not only durable, but actually “springs” into effectiveness when the principal becomes incapacitated. A Springing Power of Attorney can not be used by the agent until the principal actually becomes incapacitated. The appeal of a Springing Power of Attorney is obvious in the estate planning context. At first glance, most people would rather not grant immediate access to such sweeping powers as are found in a Durable Power of Attorney. They would prefer those powers to become effective only when needed.
However, there is a major potential drawback to the Springing Power of Attorney. In order for the Power to become effective, the principal’s doctors must verify in writing that the principal is incapacitated. So what happens if for some reason the doctor won’t sign the paperwork? The Power of Attorney is useless and nobody will have authority to manage the principal’s property. The principal’s family will have to go through the court guardianship process instead, a much costlier and more burdensome process. Most clients are better off using a Durable Power of Attorney that goes into effect immediately upon signing it. If you don’t trust your agent to have that power immediately, you probably shouldn’t be appointing that person as your agent at all.
One important thing to remember about using a Durable Power of Attorney is this: if the principal is incapacitated, the Power of Attorney must be recorded at the Register of Deeds office in the principal’s county of residence before it is used. The Power of Attorney must also be recorded if the agent engages in a real estate transaction on behalf of the principal.