Some thoughts on preparing for contingencies
Estate planning is as much about preparing for lifetime contingencies as it is about managing the distribution of one’s worldly goods after death. An important part of contingency planning is authorizing someone to manage your financial affairs if you are absent or incapacitated. A power of attorney gives one or more persons the power to act on your behalf. Powers of attorney that are valid in the state where executed are accepted in all states. Each state has power of attorney laws, and variations by state are common.
As the maker of the power of attorney, you are the Principal, and the person granted the authority to act on your behalf is the Agent, known in some states as the Attorney-in-Fact. The power you grant may be “durable” so that it has no automatic expiration and continues in effect even if you are become incapacitated and unable to manage your own affairs. You can also create powers of attorney limited to a specific event or period of time such as closing on real estate, or handling your financial affairs during extended business travel away from home. The authority can be effective immediately, or only upon the occurrence of a specific event, such as incapacity. The power of attorney can be revoked, and most states require the revocation to be in writing. Virginia’s power of attorney law revokes the agent’s authority to act if Agent and Principal are married and a petition for divorce or annulment is filed.
It is a major step to entrust your financial affairs to your Agent, and it is important to consider who should be trusted with such sweeping authority. Fortunately, there are protections and remedies under state law. Your Agent is a “fiduciary” who owes a legal duty to act in your best interest. You may not be able to assert your right to protection, but family, potential heirs and certain state agencies can do so. Your Agent is required to maintain good records on how your assets have been used, and can be instructed to prepare regular accountings.
It is also important to consider the consequences of not naming an Agent. If you do not have a power of attorney and become unable to manage your own affairs, it becomes necessary for a court to appoint someone to manage on your behalf. The court must first find that you are incompetent, which takes away any right to manage your own affairs. To regain your rights, the court must rule that you are no longer incompetent. This can be an expensive, time consuming, and ultimately humiliating process.
Banks and investment companies frequently have their own power of attorney forms, and out of concern for liability, ask Agents to produce signed copies of their forms. Under Virginia law, institutions may not require an additional or different form in lieu of a properly signed and notarized power of attorney.
Unless the power of attorney states its own conditions for expiration, it remains valid. If you move to another state, it should not be necessary to draw up another power of attorney. It may be worthwhile to take the opportunity of relocation to review all estate planning documents.
A durable financial power of attorney does not grant the Agent the power to make decisions on your health care. For that you need a separate health care power of attorney with HIPAA privacy authorization, naming your agent, the powers you are granting and access to your medical records.
Once a child turns 18, the parents no longer have legal authority to manage the child’s financial affairs. Nor can the parents make health care decisions or have automatic access to the child’s medical records. Protect you college-bound teen by having financial and health care powers of attorney prepared.