Power of Attorneys Explained
When Does the Power of Attorney Take Effect?
You have two options with regard to when the agent or agents you name are given the legal authority to manage your personal financial and general affairs.
Option 1: Springing
A “springing” power of attorney “springs” into effect upon a determination (or adjudication) of your incapacity. This prevents the agents you name from taking any action prior to your becoming incapacitated which, on the surface, sounds good. Why would you want anyone to act on your behalf before then? However, securing such an adjudication takes time and money because a court is usually involved. It is my recommendation in most cases that the principal (you) opt for authority which is immediately effective upon signed (as described below).
Option 2: Immediately Effective
A power of attorney which is immediately effective upon signing does just that; it bestows the legal authority for your agent to act on your behalf immediately upon your signing the document. If you are injured and incapacitated, steps likely need to be taken in a timely manner to manage your finances and property and your agent needs access to your accounts to enable them to do so. By drafting your power of attorney to become effective immediately upon signing, you allow your agent to step in right away without the requirement of adjudication of your incapacity.
The reason for the smooth transition is that your agent had the power to act for you all along. This makes it critical that your agent is someone in which you have complete trust. If there is any question on this point, consider a springing power of attorney instead (as described above).
Note about interacting with banks and other institutions: In my experience, bank representatives are often unaware of the difference between a springing power of attorney and one that is immediately effective upon signing. This is understandable, as they look the same except for a bit of language usually toward the end of the document, and because bank representatives themselves are not lawyers or trained to recognize the difference. Therefore, a bank representative may require proof of the incapacity of the principal even when presented with a power of attorney which is immediately effective upon signing. At this point, your agent should reiterate that the power of attorney does not require such proof and that they should forward the document to their legal department for confirmation of this.
Durable vs. Special
You will sometimes hear the term “durable” power of attorney. A durable power of attorney survives the incapacity of the principal (you). Thus, the durable power of attorney is the type that we are discussing today and is the type that is appropriate for estate planning.
Durable powers of attorney are contrasted with “special” powers of attorney, which are rendered ineffective upon the incapacity of the principal. Since our goal is to plan for incapacity, special powers of attorney are usually not appropriate for estate planning. They are very helpful in other circumstances, however, like when a person is overseas and wishes to give authority to someone stateside to, for example, transact business on their behalf while away.
Special Powers
A power of attorney is not an entirely standardized document, despite the fact that it is treated that way by manufacturers of standard forms available to the public and from online legal document drafting services. In fact, there are a host of powers that may or may not be appropriate in your case which an attorney can help you decide on whether to include. These special powers are only given to your agent if you include them in your power of attorney document. Discussion of each of these powers is beyond the scope of this article, but each is worthy of discussion with your attorney.
Such powers include giving your agent the power to:
Delegate authority
Appoint a substitute agent
Nominate a guardian
Create or change rights of survivorship
Create or change beneficiary designations
Waive rights as a beneficiary of a joint or survivor annuity
Exercise fiduciary powers
Create, amend, revoke or terminate a living trust
Disclaim property
Make limited or unlimited gifts
Exercise authority regardless of relation
Manage digital assets
Stay tuned for the next post in this series on your healthcare power of attorney and living will. If you would like to draft an estate plan or power of attorney, or just have questions, please don’t hesitate to reach out at nick@vancouverwillsandtrusts.com or call (360) 326-0134.