Have you ever wondered what would happen if you were seriously injured in a car accident and up in a hospital for an extended period of time? How would your bills get paid? Who would take care of all your financial matters? Most people don’t like to think about this stuff, but that situation is exactly why you need a durable power of attorney. Having someone appointed ahead of time to deal with any financial needs you have if you become incapacitated will save your family so much headache when they’re already dealing with so much.
What is a durable power of attorney?
You’ve probably heard of powers of attorney before. A lot of people think about medical powers of attorney—like living wills and health care directives—when they hear the term power of attorney. But, there’s another equally important (maybe more so) power of attorney that protects your financial life if something happens to you.
This is the durable power of attorney. It is simply a document that gives another person the ability to access your finances if something happens to you. It can be as simple or as complex as you want it to be and it can cover almost any business you could do yourself. It just depends on the language used in the document, subject to any laws in your state regarding powers of attorney.
A durable power of attorney ceases at death and is not used to dispose of any assets after death, so it is in no way a substitute for a will or other estate planning documents.
Durable powers of attorney are based in state law, so you can search to find specific requirements for your state. Generally, it has to be signed and notarized, and may require a witness (or two). If it’s being used to convey real estate, it will have to be filed with the county clerk just like a deed.
How is a durable power of attorney used?
The most basic example of how a durable power of attorney is used is using it to have access to bank accounts. The person you appoint, called your power of attorney, would take the durable power of attorney form to the bank and the bank would give them permission to access your accounts.
You may be wondering why you would need this. Let’s say you’re married, but for whatever reason you have accounts in your individual names. Your spouse, even if you were in the hospital and completely unable to communicate, cannot go to the bank and access any of your accounts.
I once heard about a case where a husband was injured in a motorcycle accident. He was in a coma for 9 months. Just because they’d never thought about doing it, all the accounts were in his name. The wife had to go to court every month and ask permission to access “their” money to pay bills and other necessities. She ultimately got the money she needed to continue caring for their family, but with a power of attorney the stress and inconvenience of asking the court for money every month could have been completely eliminated.
If you own all your accounts jointly do you still need a durable power of attorney? The short answer is yes. Imagine a similar situation, but this time your spouse needs to sell the house to meet the growing medical bills. In most states, a spouse can’t sell a piece of real estate without the other spouse’s signature. And, if you’ve planned well, both names will be on the deed, so your signature would be required. This would likely require permission from a court before the sale could take place. Having a well drafted power of attorney would allow your spouse to sign your name and complete the sale of the house with no intervention.
Can my power of attorney access my accounts while nothing is wrong with me?
Yes and no. There are two types of durable powers of attorney—one that takes affect now and one that only takes affect if it’s needed. The first is called a general durable power of attorney and the second is a “springing” power of attorney.
A springing power of attorney is the right choice for a lot of people. You still have the same protection as a general power of attorney, but your power of attorney has to take the additional step of getting it validated by the court. Typical language includes needing 1-2 doctors’ letters to declare you are unable to make your own decisions (??). Your power of attorney would take these letters to court and the court would make the power of attorney take effect. It will take a little more work when it’s needed, but it provides the protection of your property while you’re in good health.
A general power of attorney takes effect immediately. This can be a good choice for someone who is older. The most important thing to remember for a general power of attorney is you must choose someone you trust. This is not a choice to be taken lightly. By having a general power of attorney, you are immediately giving the right of your power of attorney to exercise any of the powers they have by way of the power of attorney. This doesn’t mean it takes the power away from you, just that they have it, too.
Who should be my power of attorney?
It’s always important to choose someone you trust. This cannot be overstated enough, especially if you’re choosing a general durable power of attorney. But, in either case, your power of attorney needs to be someone you trust completely with access to all your finances.
It should not be someone who is in their own financial troubles. Obviously, someone without a drug problem or a history of criminal activity is preferred, too.
Your power of attorney should also be organized and generally good at managing finances. You don’t want to choose someone who is going to miss due dates or will misplace all your important records. On the other hand, they don’t have to be an accountant, just good enough to keep track of everything.
What to do with your durable power of attorney?
- Keep the original in a safe place
This should be somewhere that’s easily accessible. Be careful putting important documents in a safety deposit box that only you have access to. Generally, a court order is required to access a safety deposit box that doesn’t belong to you, so storing your documents there may mean your power of attorney has to take additional steps that would prolong the process.
- Talk to your power of attorney
It’s not required, but it’s a good idea to let the person you choose know that you’ve chosen them to be your durable power of attorney. They should know where to find the document if they need it.
- Make a list of all your financial accounts, debts, and assets
To make things easier for your power of attorney, it is helpful to make a list of all financial accounts, liabilities, assets, and/or real estate they may have to manage. Keeping this information all in one place will make the process straightforward. Everyone should have a durable power of attorney. We all hope nothing like this will ever happen to us or our loved ones but having the right documents in place will be much appreciated and will make everything go a lot more smoothly for the family.