What you need to know about updating your power of attorney now
Many people are taking time during COVID-19 to update their power of attorney. If you can locate yours, you may discover that it is many years old. Just because it is old does not make it invalid, but it may mean that the person you name in it may encounter difficulty using it if needed. That’s because many financial institutions want to see a “fresh” power of attorney, meaning one that was signed in the last few years not when Bill Clinton was in office.
When you revisit your power of attorney, it is a good time to bring “fresh” eyes to it as well. Here are some important issues to consider and review with your estate lawyer.
Do you need a durable or springing power of attorney?
Your power of attorney is a powerful document. It gives the agent you name (often referred to as the “attorney-in-fact”) access to your assets. It is meant to be used in the event of your incapacity; however, many lawyers draft powers of attorney for their clients that are effective when signed. This is known as a “durable” power of attorney. It is durable because it is effective when signed and survives your later incapacity (if that occurs).
The other type of power of attorney is a “springing” power of attorney which “springs” into effect only when you become incapacitated. Most people initially prefer to execute a springing power of attorney because it is less daunting. However, a springing power of attorney can be much more difficult to use because your agent will need to convince your local bank representative that you are in fact incapacitated. The document will spell out how to determine if you are incapacitated. However, many banks do not want to have to make that determination so they refuse to act, or your agent needs to get your lawyer involved which can add otherwise unnecessary fees.
Are there ways to mitigate concerns?
While a durable power of attorney is the better choice for ease of use, many people still have reservations about using them. The concern with a durable power of attorney is that it is valid and useable by your agent as soon as it is signed. Some clients fear that their named agent will clean them out while they are out of town on their first post-COVID vacation.
First, if you have that concern, you have probably named the wrong person as your agent. Second, to mitigate these concerns and risks, some law firms will hold the original powers of attorney in their will vault and only release them to the named agent upon a showing that you are incapacitated. Also, don’t forget that your named agent has a fiduciary duty to use the assets for your benefit and not to go on a shopping spree with your monies. For that reason, you want to name someone who is trustworthy and able to handle fairly sophisticated financial matters. Don’t name your cousin who lives paycheck to paycheck. You don’t want to tempt him.
Who should you name?
Many people name their spouse as their attorney-in-fact. If you are not married or not comfortable naming your spouse (perhaps this is a second marriage), you could name an adult child or even a close family friend. Some clients will name a trusted advisor such as an attorney or an accountant.
Look at who you named in your old power of attorney with an eye to the future. Is that person still the best choice? Perhaps you want to name someone younger rather than an aging family member.
Can you name multiple attorneys-in-fact?
Check with your lawyer, but in most situations you can name two people to serve together as your attorney-in-fact. This makes administration slightly more difficult because typically both people will need to sign documents; however, it may be worth it for your peace of mind. You should also name an alternate agent if your original choice is unable to act.
Remember the named agent only has access to the assets in your name alone. If you have assets in trust, the successor trustee named in the trust document will act upon your incapacity. And don’t forget that when you die, the power of attorney is no longer valid. It dies with you.
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