At some point in your life, you might not be able to make decisions for yourself. In the event that this happens, you want to know that you have someone you can rely on to make decisions for you. At MHPS, we help clients understand what they need to best protect their wishes in the future and then help them accomplish this. One of the documents that a client needs is a financial power of attorney. This is also often referred to as a “Durable Power of Attorney” or a “DPOA.” The DPOA gives someone the ability to handle your financial affairs for you.
Types of Durable Power of Attorneys
There are two types of DPOAs. The first is what we call a “springing” DPOA. The springing refers to the power of the person appointed (we will refer to the appointed person as the “Power Person”). This power doesn’t exist or “spring forth” until the client is deemed to be incapacitated. The incapacitation is usually certified by the client’s doctor, or sometimes by two doctors. Until the certification of incapacity occurs, the Power Person has no authority to act for the client.
The other type of DPOA is what we call an “immediate” DPOA. With this DPOA, the Power Person’s authority exists immediately after the document is executed.
The vast majority of DPOAs we do are springing DPOAs. This is because most people are not ready to give someone else authority over their finances until sometime in the future when they have become incapacitated. Until that time occurs, they want to be the only person who can act on their financial decisions.
The immediate DPOA is commonly used when the Power Person is already handling much of the client’s financial activity. Sometimes a child will tell us that they’ve “been signing mom’s names to the checks for the past three years.” My comment is usually something like, “Let’s make it legal, do an immediate DPOA, and start signing your name as the Power Person.”
What Does a Durable Power of Attorney Do?
The next issue we address with clients is the relationship between the client and the Power Person. The Power Person needs to understand that he/she is a fiduciary for the client. That means that the Power Person has to act in the client’s best interest, not in a way that benefits the Power Person. With an immediate DPOA, the Power Person is empowered to help the client effectuate their financial decisions.
The Power Person is not supposed to counter the client’s decisions. If a competent client wants to buy a new house, the Power Person cannot prevent the purchase. If the client is incapacitated, then it can become difficult. The DPOA does not prevent the client from doing things like buying a car. But due to the client’s incapacity, the DPOA may be able to unravel the transaction.
The point to all this is that a DPOA does not stop the client from making decisions. Only the court, through a conservatorship proceeding, can do that. The Power Person in a DPOA is there to help the client when needed.
One last comment. The authority granted to the Power Holder by the client in the DPOA goes away when the client dies. The Power Holder does not get to continue to make financial decisions for the deceased client. That authority now passes to the Personal Representative of the estate.
Contact an Estate Planning Attorney in Nashville to Learn More
You don’t want to take any chances when it comes to the future of your finances. Understanding everything you need to do to prepare for the future can seem overwhelming, but it’s important to do this before anything happens that can make decision-making complicated for you and your loved ones.