What is a Durable Power of Attorney?
A durable power of attorney (also called a financial power of attorney or a power of attorney for property) document should almost always be included in an estate plan. In this document, the person signing the document (the principal) designates someone else (typically the back-up trustee, referred to as the “attorney in fact”) to control property and to enter into transactions on behalf of the principal under certain circumstances.
The majority of financial powers of attorney do not go into effect until at least one doctor has determined that the principal does not have legal capacity to enter into financial transactions on his/her own behalf. This type of power of attorney is called a “springing” power of attorney. However, powers of attorney are sometimes created to be effective immediately upon signing (rather than waiting for the requirement of a doctor to declare the principal unfit to handle their affairs). This type of power of attorney is referred to as a “non-springing” power of attorney.
A springing power of attorney ensures that the powers granted go into effect only when the principal is incapacitated. No one has control over the principal’s assets until that time. A power of attorney document may explicitly state that the powers are not granted until a doctor (sometimes more than one) declares in writing that the principal is not mentally or physically capable of entering into financial transactions. The benefit of the springing power of attorney is that the principal is not subjecting himself/herself to possible fraud or mismanagement of his/her finances by an attorney in fact while he/she is alive and well. On the other hand, the burden of the springing power of attorney is that going through the process of being declared incompetent to handle one’s own finances is not pleasant, either for the principal or for the attorney in fact, which is often the principal’s spouse, child, or friend.
A non-springing power of attorney goes into effect immediately, which means that the principal, while still well enough to make financial decisions, gives immediate control of his/her assets and financial affairs to someone else. The benefit of the non-springing power of attorney is that the principal can allow a trusted friend or family member to assist him/her with managing his/her finances when he/she becomes overwhelmed with handling finances. The burden of the non-springing power of attorney is that the principal is giving up control when he/she is still capable of managing his/her finances, which can be difficult emotionally and which then subjects the principal to possible fraud or mismanagement of his/her assets by the attorney in fact.