What is a Durable Power of Attorney? Why Do I Need One?

            A durable power of attorney (DPA) is a written instrument in which one person (the principal) appoints another person or persons (the agent or attorney-in-fact) to act in place or on behalf of the principal.   The DPA usually becomes effective when the principal, due to physical and/or mental incapacity, is no longer able to manage their financial affairs.

            The DPA gives the agent the authority to transact any and all business of the principal, and the agent is also responsible for the management of the principal’s  assets.  A principal may also limit the extent of an agent’s authority by setting forth a specific/limited  scope of the agent’s duties in the durable power of attorney.  A DPA may also be very broad, so that the agent can manage any financial situation that arises with respect to all of the principal’s assets.

                        1)         Requirements For A “Legally Sufficient” Durable Power of Attorney

                                    a)         The DPA must contain a description of agent’s powers and duties;

                                    b)         The DPA must contain the date of its execution;

                                    c)         The DPA must be in writing and signed by the principal or at the principal’s direction; and

                                    d)         The DPA must either be acknowledged by a notary public or signed by at least two witnesses.

                        2)         When Does A Durable General Power of Attorney Become Effective?  The DPA will specifically state whether it is effective immediately upon execution or whether it becomes effective at a future time or on the occurrence of a specific event or contingency.        

                                    a)         Immediately Effective DPA:   A person may execute an “immediately effective” durable power of attorney, which immediately authorizes the agent to manage the competent principal’s property, and continues despite the principal’s later incapacity. As long as the principal remains competent, either the principal or the agent may act on the principal’s behalf.  While the principal is still competent, he or she may revoke the durable power of attorney at any time.  Once the principal becomes incompetent, he or she cannot revoke their durable power of attorney.

                                    b)         “Springing” Durable Power of Attorney:  This DPA only becomes effective at a specified future time or on the occurrence of a specified event or contingency.  This type of DPA usually becomes effective upon the principal’s incapacity. 

                        3)         Can A DPA Be Used To Manage The Principal’s Trust Assets?  A DPA cannot be used to manage the principal’s assets which are titled in the name of the principal’s trust.  Only the Trust document (a.k.a. Declaration of Trust) dictates who can manage the Trust assets.

                        4)         Capacity:   A principal must have the capacity to enter into contracts and understand the ramifications of his or her execution of a DPA in order for him to execute a valid DPA.  If the person does not have such capacity, then they cannot execute a DPA, because merely being able to sign your name on the DPA is insufficient to create a valid DPA. 

                        5)         Alternative: If you have a loved one, who no longer has the capacity to execute a DPA, and they have assets that need to be managed, your only alternative is to establish a conservatorship over their estate.  A conservatorship of the estate is established through the probate department of your local Superior Court (check out my blog post in 2 days).

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