A financial power of attorney is a legal document through which an individual can grant another person, called an agent, authority to perform certain actions on their behalf. The financial power of attorney is “durable” if it is effective even after the individual granting the authority is diagnosed or ruled incapacitated.
Key players in a durable financial power of attorney (POA)
There are three key players in a durable financial power of attorney:
- the Principal: the principal is the individual who is granting the power of attorney authority
- the Agent or Co-Agents: the agent is the individual or entity to whom the principal grants the power of authority. Although a principal may appoint co-agents, two or more people to serve as agent at the same time, most attorneys encourage their clients to avoid naming co-agents
- the Successor Agent(s): the person or entity that assumes responsibility and duties as agent if the primary agent is unavailable or unwilling to serve
What makes a financial power of attorney a durable financial power of attorney?
A financial power of attorney is a durable financial power of attorney if it remains effective when the principal is diagnosed or ruled incapacitated.
In most states, a power of attorney is presumed to be durable unless the instrument states otherwise. This default provision reflects the view that most people would prefer their powers of attorney to be durable as a hedge against the potential need for guardianship if they are diagnosed or ruled incapacitated.
When does a durable financial power of attorney become effective?
Unless specified otherwise in the instrument, almost all states’ laws declare that a durable financial power of attorney becomes effective at the time the power of attorney is signed.
As the principal, you could, however, decide to make your financial power of attorney effective at a future date, event, or contingency by specifying such in the document. We discuss some of these different types of financial powers of attorney in the Other Types of Powers of Attorney section below.
How to make a durable financial power of attorney
Making a durable financial power of attorney is an important decision. Above all, you should make sure that the person or entity you are naming as your agent is one that you trust. Fortunately, the actual document creation process is relatively straightforward.
With the exception of New York, Minnesota, and Illinois, all other states and the District of Columbia either recognize the Uniform Power of Attorney Act or have a similar act specifying requirements or a form that are substantially similar to the form specified under the Uniform Power of Attorney Act. At worst, for these other jurisdictions you’ll need only to update the ‘Important Disclosures’ section under the suggested Uniform Form or add a short section or two as part of the signatures or agent acceptance of duties.
In the case of New York, Minnesota, and Illinois, each has a short form statutory power of attorney form that you can find in their state statutes or online on their respective Secretary of State’s websites.
Other types of powers of attorney
A durable financial power of attorney is only one type of power of attorney. The other major power of attorney type is a medical power of attorney, sometimes called a power of attorney for healthcare, which allows the named agent to make healthcare decisions on behalf of the principal.
In contrast to a durable financial power of attorney that by default becomes effective immediately and continues to hold in the event of your incapacity, a springing power of attorney or a contingent power of attorney is one that becomes effective upon a future date, event, or contingency. For example, you may have a springing financial power of attorney that becomes effective only when you are diagnosed or ruled as incapacitated.
In a 2002 study, 23% of lawyer respondents found their clients preferred springing powers, 61% reported a preference for immediate powers, and 16% saw no trend in either direction.