How To Create a Durable Power of Attorney For Financial Matters
Step-By-Step Instructions With State Links
1: Nature of "Power of Attorney"
What is a "Power of Attorney"? In the general sense, a "Power of Attorney" (hereinafter "POA") is a document whereby one person (called the "principal") authorizes another individual or entity (called an "agent" or "attorney-in-fact") to act on behalf of the principal. The most common uses for a POA are financial transactions and health care decisions. Most states have one set of laws governing financial POAs and second set of laws governing POAs for health care decisions. Therefore, it is the common and recommended practice not to mix the two purposes into one document: i.e., an individual desiring to have a POA covering both financial and medical situations should prepare two separate POAs, one dealing with financial issues and the second dealing with medical issues.
When should I have a financial Power of Attorney? There are generally two reasons for the preparation of financial POA. The first is when you contemplate the need for completing financial transactions during a period when you shall not be physically present to complete the transactions yourself. For example, suppose Tom Jones has contracted to sell his vacation home in Florida next month but has important business to attend to in Michigan the same day as the real estate closing in Florida. In such circumstances, it would be customary for Tom Jones to execute a financial POA in favor of an agent (also called an "attorney-in-fact") who could attend the real estate closing in Florida while he is in Michigan and execute all necessary legal documents on his behalf to complete the sale. Persons with physical handicaps or limitations often execute financial POAs in favor of family members as agent to the allow the family member to do such routine matters as making withdrawals from the principal's bank account as it would otherwise be a burden for the principal with physical limitations to make the short trip personally to perform the transaction. The second reason for preparation of a financial POA is preventative in nature. If you lose the mental capacity to handle your own financial affairs, without a durable power of attorney, your family members will need to go to court and have a guardian or conservator appointed over your assets. If you have previously executed a durable power of attorney and then lose mental capacity, the agent named in your POA will be able to handle your financial affairs without the time and attorney fees necessary of going to the court to get a guardian / conservator appointed.
"Durable". A "Durable" POA is one that remains in force even after the principal (i.e., the individual who executed the POA) loses mental capacity. Unless a POA is "durable", it will become ineffective at the time the principal becomes incompetent. Thus, a POA which is not "durable" fails to protect you against the potential of your family having to go to court and get a guardian / conservator appointed over your assets.
What makes a Power of Attorney "Durable"? This is a matter of state law. The Uniform Durable Power of Attorney Act has been adopted by 48 states and, provides, the following definition in Section 2 thereof:
A durable power of attorney is a power of attorney by which a principal, in writing, designates another as his attorney in fact and the writing contains the words, ""This power of attorney shall not be affected by subsequent disability or incapacity of the principal'', or ""This power of attorney shall become effective upon the disability or incapacity of the principal'', or similar words showing the intent of the principal that the authority conferred shall continue notwithstanding the subsequent disability or incapacity of the principal.
Thus, the first requirement is that there be a written document and, secondly, the document contain words such as those above which clearly indicate that the principal intended the POA to be effective even after he or she became incapacitated. Although the language of the Uniform Act does not specifically state whether the document must also be notarized in order to be durable, the form recommended by the uniform laws commission has a space for the signature of a notary. Most states specially require POAs to be notarized to be durable and / or for them to be effective for real estate transactions. Thus, it is recommended that your POA be notarized. Also, some states require witnesses to the principal's signature. Please click on the above link to your state for additional information.
Note to residents of Louisiana: Louisiana is the only state that has not adopted the Uniform Power of Attorney Act; however, it does have a durable power of attorney statute. Link to more information. However, due to the difference between the Louisiana POA statutes and those of other states, MedLawPlus.com® does not have an online POA form designed for use in the state of Louisiana.
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