When do you need your estate plan to “go to work” for you? While you may think the right answer is “after I die,” the actual answer is “if you lose the ability to manage your affairs.”
Which means having the right kind of Durable Power of Attorney for Finance is vitally important. A June 2020 Transamerica Center for Retirement Studies survey found that only 28% of retirees have a financial power of attorney, yet many people don’t understand that there are two types of these advance directives and that each one serves a very different purpose.
Knowing how both types work is critically important, particularly in this COVID-19 environment.
Two Types of Durable Power of Attorney for Finance
A Durable Power of Attorney for Finance can be either “springing” or “immediate.” “Durable” refers to the fact that this Power of Attorney will endure after you have lost mental or physical capacities, whether temporary or permanent. It lists when the powers would be granted to the person of your choosing and the powers end at your death.
An “immediate” Durable Power of Attorney for Finance is effective immediately after you sign the document, but a “springing” Durable Power of Attorney for Finance means two physicians must first examine you and declare that you cannot manage independently anymore.
An deficiency requiring a Durable Power of Attorney for Finance can happen quickly and could even include you and your spouse.
In other words, “springing" means the person you’ve chosen and named in the document to act on your behalf (known as your agent) can’t use the powers unless the doctors' letters are acquired first. Which means, in order to start paying your bills, your agent must have those two physicians’ letters, and unfortunately, he or she doesn’t automatically have the authority to ask for them.
Why You Might Want a 'Springing' Version
You might want your Durable Power of Attorney for Finance to be a springing document because you fear that otherwise your agent might go to the bank and add his or her name to your account without your permission or awareness.
Some people name their spouse as the immediate agent; then successor agents would have to get doctors' letters. When barriers such as doctors’ letters are required before the person you chose can serve you, ask your attorney for guidance.
That’s because an impairment requiring a Durable Power of Attorney for Finance can happen very quickly and possibly include you and your spouse at the same time. You might both contract COVID-19, for instance, or be in a car accident together.
Naming the Right Agent for You
It’s also essential that the person you’ve named in your Durable Power of Attorney for Finance is the right one to do the job for you.
You should feel confident that if you had to give your checkbook to your chosen agent for two billing cycles, with no instruction other than to get the bills paid on time, you’d feel no hesitation about this. If there’s even a slight hesitation, you may have selected the wrong person.
If you recover your capacity, your agent has a duty to turn everything back over to you when you ask. If you’re worried that your agent wouldn’t want to give you back your own power, you’ve chosen the wrong person.
The powers granted by a typical Durable Power of Attorney for Finance are often broad and sweeping. They allow for selling and buying assets; managing your debt, car and Social Security payments, filing your tax returns and handling any assets not named in a trust you may have, such as your Individual Retirement Account.
It is likely that the executor of your Will, your trustee and Durable Power of Attorney for Finance agent are the same person or people. They will be responsible for accounting for every single penny you have, knowing where everything you own is and making sure your funds are used as efficiently as possible for your benefit first.
Remember: your advance directive documents are only as good as the people who implement them. Often, family members chosen to do this work have never done it before and may not have the time or energy.
What Your Durable Power of Attorney Agent Needs
It’s not enough to complete your Durable Power of Attorney for Finance document and have it in a file somewhere. Make sure anyone named knows they’ll have the job if needed. They must know where to find this and all other important financial documents, where you bank and invest, and have information about all your assets and liabilities.
They should also possess detailed information about how you would want things done if you are alive, but unable to manage on your own.
In short, you want your selected person to be ready to “go to work” the moment you need that.
Whether you’re ready to start pre-planning or facing a crisis and trying to figure out what to do next, Bob Michaels with Tacoma Elder Care is here to help. To get started today or to learn more about what we do, schedule an appointment today!
Bob Michaels is extremely passionate about providing the best possible legal experience for his clients, and focuses his practice on elder law, estate planning, business, and real estate matters. Bob specializes in helping folks build a long-term care plan based on their circumstance. If you are considering a long-term care plan, schedule your appointment today!
This article is an abridged and edited version of one that originally appeared HERE.