A durable power of attorney is a document which gives someone broad powers over your financial affairs. Especially as one gets older, this document becomes a necessary evil. Why is it evil? By its nature, a power of attorney gives control to a person of your choosing to transact business on your behalf. It gives the power to deposit and withdraw funds, change beneficiaries on ones accounts, and even to liquidate funds. If one becomes unable to handle his or her own financial affairs, whether it be due to a temporary or permanent physical or mental disability, it is imperative that someone take over this necessary function. Even with younger clients, the power of attorney may become necessary because retirement accounts are owned and accessible only by the person who owns the account, and these accounts can not be joint. So even in the case of a husband and wife, if the wife or husband is travelling for an extended period of time, or otherwise become unavailable or unable to act, a power of attorney is an important document.
The danger inherent with the power of attorney is that it gives the agent you appoint complete control over your assets, even if you are not disabled. Hopefully one chooses a trustworthy child or family member to take on this role. Additionally, one of the safeguards so that it is not used before one becomes disabled is for the person who executes the document to refrain from giving the document to his or her agent unless and until that person becomes disabled. Without the executed document in the agent’s hands, the agent is powerless.
What happens if a person becomes disabled and has not executed a durable power of attorney? In that event, a family member or friend must petition the courts for guardianship, to declare the person incompetent and then be appointed to handle that person’s affairs. Needless to say, a guardianship proceeding is costly, can take a great deal of time, and can be adversarial. Even after a guardian is appointed, the court remains in the picture, to oversee the guardian’s activities, thus creating more work and expense. Perhaps more importantly, it is the court that decides who should take over a person’s finances, rather than the person choosing who will take over this role.
It is important to keep in mind, for clients who move to states other than New York, or even who spend a great deal of time in another state and have assets there, that the power of attorney form varies from state to state. A New York power of attorney form, for example, will very likely not be acceptable in the state of Florida.
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