Our guest contributor, Ling Lam, attorney at law, provides a brief overview of financial power of attorney documents you need to protect your family.
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General Durable Power of Attorney
When drafting a financial POA, most attorneys prefer to use a general durable POA, which means the appointed agency is effective immediately upon signing of the document AND it continues to be in effect after the principal becomes incapacitated, (hence the word “durable”). The powers granted to the agent are usually every power that the principal would have, i.e., the ability to conduct any financial transaction on behalf of the principal. It is of the utmost importance that the principal chooses an agent who is trustworthy and will carry out his or her fiduciary responsibilities with the highest standard of care. While this type of POA is considered to be effective immediately (and therefore convenient when one spouse must conduct business on behalf of a traveling spouse), generally speaking, these POAs are not used unless the principal is either physically or mentally unable to act for him or herself. There is always, however, potential for fiduciary abuse, meaning the agent could improperly conduct transactions for the personal benefit of the agent, which is why choosing an agent requires careful consideration.
Springing Power of Attorney
A springing POA does not “spring” into effect until after the principal had become incapacitated. At first glance, this would intuitively appear the type of POA every client would want, as opposed to the general durable POA which is effective upon signing. The problem with springing POAs and the reason more and more practitioners are hesitant to draft them is because of the Health Insurance Portability and Accountability Act (HIPAA) and the Right to Privacy Act. Certain HIPAA regulations will impose significant monetary fines against a medical provider who discloses patient information in violation of HIPAA regulations. Therefore, many doctors are hesitant to provide the necessary written documentation that would confirm a principal’s disability for the POA to then trigger into effect.
Ling Lam, Attorney at Law, of Counsel for Webb &Schtul, LLC, can be reached at (303) 840-7049 or firstname.lastname@example.org.This article is intended to provide the reader with basic information regarding the use of financial powers of attorney. The materials and the comments of the author do not constitute, and should not be treated as legal advice regarding the use of any particular estate planning technique or the tax consequences associated with any such technique. Although every effort has been made to assure the accuracy of these materials and comments, the author does not assume responsibility for any individual’s reliance on the written information disseminated. You should independently verify all statements made in this article before applying them to a particular fact situation, and should independently determine both the tax and non-tax consequences of using any particular estate planning technique and consult with any attorney before using that technique on your own behalf.