Planning For Incapacity Part 1: The Power of Attorney
While no one wants to think about it, becoming incapacitated during your lifetime is not an unlikely event. According to the National Association of Insurance Commissioners, one in four 25-year-olds will experience at least one period of disability before they are 65. Other Insurance statistics indicate that there is a 79% chance that an individual will be disabled for at least 90 days or more at some time in their life. What will happen to your home and bank accounts when you are not able to pay bills or deposit checks? What will happen with your IRA or investment accounts if you are not able to manage them? In the “Planning for Incapacity Series" we will discuss different options individuals can utilize to protect themselves and their families in the event of disability or incapacity. The first article will answer some basic questions regarding a New York Statutory Short Form Power of Attorney, or “POA" for short. Subsequent articles will discuss other facets of planning for disability or incapacity.
What Is A Power of Attorney?
A POA is a powerful and inexpensive tool which allows a competent individual who is at least 18 years old (the principal) to designate an agent to handle their financial, business, and real estate related affairs. Through a detailed and statutorily recognized writing, the principal can empower his agent to act on his behalf as per the directions and limitations spelled out in the POA. The agent can do no more than a properly drafted POA allows, which makes proper drafting crucial. A POA can allow an agent to deposit checks, pay bills, transfer real estate, manage finances, and open and close financial accounts on behalf of the principal while acting in a fiduciary capacity. The principal will have peace of mind knowing that his finances, and his family, will be taken care of in the event that he is not capable of handling them on his own. Preparing a POA can save thousands of dollars and many months which are required to obtain guardianship over an incapacitated individual’s finances.
Who Can Be An Agent?
The agent can be anyone that the principal trusts to manage his/her affairs, but is generally the spouse and/or children. A typical POA appoints the spouse as the agent and the child(ren) as successor agents in the event that the spouse is unable to act. Since a POA gives the agent power to manage the principal’s finances, it should be given with much thought. The general rule is that you should only appoint those individuals whom you would trust with your credit card or a blank check. A principal can name co-trustees which means that multiple agents will have to act together to accomplish anything. This can be an effective way to prevent one agent from having unbridled control but can make it more difficult to accomplish even simple transaction. Another way to oversee the acts of the agent is to appoint a monitor over him/her, although this is seldom done. If you need someone to monitor your agent, maybe you shouldn’t appoint them in the first place.
When Can The Agent Begin to Act?
The powers can be given to the agent immediately upon execution of the POA or can “spring" into effect upon the principal’s incapacity. If “springing powers" are used, the agent can only act after the principal is shown to be incapacitated by a letter from the principal’s treating physician, or by another physician if the treating physician is not available. This will assure the principal that the agent can not do anything while the principal is competent, but will make it more burdensome for the agent to prove that the principal is, in fact, incapacitated or incompetent.
When Does the Power Terminate?
A competent principal can revoke the POA at any time by giving notice to the agent and preferably any institutions which the agent may have already used the POA. If the principal does not, or can not, revoke, we look at what type of POA was given. There are two general types of Powers of Attorney: (1) Durable Power of Attorney and (2) Non-Durable Power of Attorney. A durable power of attorney survives the principal’s subsequent incapacity while the non-durable power of attorney ceases to be valid if the principal becomes incapacitated. For obvious reasons, the durable POA is the only one that I recommend clients use in order to plan for incapacity. A non-durable POA is useful in situations where incapacity is not the reason for its creation, such as when one spouse can not attend a house closing in person. A POA can also terminate the agent’s authority at a certain date or after a certain goal has been accomplished.
How Do I Execute a Power of Attorney?
After a POA has been properly drafted, preferably by a knowledgeable attorney, the principal needs to initial next to each power which they wish to confer upon the agent. The principal then signs the POA and has his signature notarized. The POA is not effective, however, until the agent signs and acknowledges that he has read the section titled “Important Information For Agent" which explains the agent’s role, fiduciary obligations, and limitations on his authority. The agent does not have to sign at the same time as the principal, and successor agents do not have to sign at the same time as the primary agent.
The Statutory Short Form Power of Attorney is a fundamental document of any estate plan and should be considered for all individuals regardless of their financial situation. It helps the family deal, at least financially, with the incapacity of a loved one and is a much more inexpensive way to deal with such an occurrence. To discuss this issue with an Queens attorney who specializes in these matters, contact our office at (347)766-2685.