What Happens when a Durable Power of Attorney Goes into Effect?
A power of attorney does not give instructions regarding the distribution or management of assets in terms of how assets will be managed and distributed; rather, it is a means of designating an attorney in fact, who will then have legal authority to sell and manage the principal’s assets on behalf of the principal during his/her lifetime, in the event the principal is ever incapacitated. The attorney in fact will typically have full discretion and authority to manage the assets as he/she sees fit, subject to any specific instructions that may be given in the power of attorney document. Any assets for which a principal desires to give specific management instructions, however, should typically be transferred to a living trust, with the living trust including specific instructions for how those assets are to be managed. Because the attorney in fact and trustee are typically designated to be the same person, that person has the ability to manage 100% of the principal’s financial affairs - the attorney in fact is able to transfer assets to the living trust, make payments on behalf of the principal using trust assets or non-trust assets, etc. If the trustee and attorney in fact are not the same person, then the trustee has authority only over the assets in the trust, and the attorney in fact has authority over only the assets outside of the trust. Designating the trustee and attorney in fact as one and the same allows for streamlining of financial decisions.