Durable General Powers of Attorney
For many people, the durable power of attorney is the most important estate planning instrument available – often more useful than a Last Will and Testament – because it operates during your lifetime and may avoid costs and expenses during periods of disability or incapacity. A power of attorney allows the appointed agent (“attorney-in-fact”) to act on your behalf.
Typically, this occurs in the context of financial activities during incapacity. In that case, the person you appoint will have power to take care of your financial affairs. Without a durable power of attorney, it may be necessary to have a court appoint a conservator or guardian. That court process takes time, costs money, and the person you prefer as your agent may not be appointed. In addition, under a guardianship or conservatorship, your representative may have to seek additional court permission to take actions that otherwise could have been authorized with a durable power of attorney.
A power of attorney may be limited or general. A limited power of attorney gives the agent authority to perform certain transactions, such as signing a deed to sell property when you are out of town or signing checks for you. A general power is comprehensive and gives your attorney-in-fact broad powers to act for you.
A power of attorney may also be effective when signed (current) or “springing.” Most powers of attorney take effect immediately upon their execution, even if the understanding is that the agent will not act until and unless the principal becomes incapacitated. However, it can also be written so that it does not become effective until incapacity occurs. In such cases, it is very important that the standard for determining incapacity be clearly stated in the document.
It is often reported that people experience difficulty with banks or other financial institutions recognizing their authority as agent under a durable power of attorney. A certain amount of caution on the part of financial institutions is understandable. The financial institution wants to verify that the attorney-in-fact indeed has the authority to act for the principal. Many institutions require that the attorney-in-fact indemnify them against any loss or that the principal sign the bank’s standard power of attorney form. While Virginia enacted the Uniform Power of Attorney Act to address this concern, it may be prudent to have your POA approved in advance by the institution(s) with which you have accounts. In addition, many times living trusts are used to avoid these issues.