One of the most common points of confusion that we encounter when discussing estate planning documents with clients, and potential clients, is the role of powers of attorney relative to the roles of wills and trusts.
General. A Power of Attorney is a document the purpose of which is for the principal (the person making the power of attorney) appoints an attorney-in-fact (the person who will exercise power for the principal and not necessarily an attorney) to make certain decisions for the principal. Common examples of the kinds of decisions that principals can delegate to their attorney-in-fact are financial decisions, healthcare decisions and decisions regarding the care of minor children.
Types of Powers of Attorney. Powers of Attorney can be set up in many different ways. For example, a durable power of attorney is a power of attorney that remains in effect if the principal becomes incapacitated. If a power of attorney does not include language making it durable, it will be invalid if the principal is incapacitated (and, it is often the point, to grant the power in exactly that circumstance). Another example is that powers of attorney can be made to be effective immediately or only upon the happening of an event (a “springing” power). Combining these two examples, most estate plan packages include a “Durable Springing Power of Attorney” which means that the power only becomes effective upon incapacity and remains effective during incapacity of the principal.
Before and After Death. Another common confusion that clients often has is the role that a power of attorney plays after the death of the principal. Clients often confuse the powers under a will with the powers under a power of attorney or a trust. By law, a power of attorney terminates upon the death of the principal whereas a will has no effect until death. So, prior to death, powers of attorney and trusts are effective and, after death wills and trusts are effective. A trust is a separate entity under the law so it is effective (depending on how it is structured) before and after death.
Choosing People to Exercise Power. The biggest issue in drafting a power of attorney for a client is selecting people to exercise the power (i.e., selecting the attorney-in-fact). This is a very personal decision and differs for every client. Sometimes, just because a person is local does not mean that they are the best choice to exercise powers for a principal. Similarly, the oldest child is not always the best person to be vested with powers to make decisions. Clients should take care to pick people who are best suited to make the necessary decisions.
We generally work with clients that have less then $2 million in assets and are in need of a basic estate plan. Please visit our Estate Planning page for more information our our services and our Fees page for information about our charges. If you just have a few questions, please call as our telephone consultations are always free. Whether you elect to retain us, or someone else, please make sure to have a plan and, if you already have a plan, keep it updated.