A main element of a comprehensive estate plan is the financial durable power of attorney (DPOA). There is typically two DPOA’s in the estate planning realm: one for finances, and one for medical. This post focuses on the financial DPOA.
A DPOA permits someone to make financial decisions on your behalf. The DPOA appoints an agent to legally act on your behalf: “An act done by an attorney in fact under a durable power of attorney during a period of disability or incapacity of the principal has the same effect and inures to the benefit of and binds the principal and the principal’s successors in interest as if the principal were competent and not disabled. Unless the instrument states a termination time, the power is exercisable notwithstanding the lapse of time since the execution of the instrument. A durable power of attorney that authorizes the agent to convey or otherwise exercise power over real estate does not need to contain the real estate’s legal description.” This agent can make certain, specified financial decisions for you. Sometimes, a financial DPOA is put in place when someone is traveling to remote distances and will not be available or able to make financial decisions. In the estate planning realm, the financial DPOA is often “springing,” meaning that it only comes in to effect upon certain specified events such as incapacity.
Typically, the agent is given broad financial powers, although the DPOA can limit their authority. You are give you agent as much or as little power as you want. Typically, when forming an estate plan, a broad power is granted to the agent. For example, the agent will be allowed to:
- Use your assets to manage day to day expenses such as paying bills
- Buy, sell and maintain real estate
- Operate your business
- Buy and sell investments such as stocks and bonds
- Manage your retirement accounts
- Pay your taxes
And handle other financial matters to ensure that your finances and assets are protected and managed during disability and/or incapacity.
A financial DPOA acts during times of incapacity or disability, which are defined in the DPOA. This avoids a situation such as when a person is hospitalized unconscious for two days and their agent makes unnecessary decisions on their behalf given that their incapacity is brief. Furthermore, given the definition of a DPOA, it is only active during someone’s lifetime. Any financial decisions after death are reflected in your will or trust, so thus, a DPOA alone is not sufficient to fully protect one’s finances and assets.