The Durable Power of Attorney is an important document and can be a very powerful planning tool.
Basically, the Power of Attorney allows a person (the "principal") to grant another person (the "agent") the authority to act on the principal's behalf, to manage his or her assets, make legal decisions and enter into transactions on his or her behalf with regard to both business and personal affairs (excluding decisions regarding health care that are covered by a separate document called a health care proxy). The agent (who must be an adult) is the principal's fiduciary so that he or she must act according to the principal's wishes or if the principal become incompetent, then the agent must act in the best interests of the principal.
Because a Power of Attorney authorizes the agent to step into the shoes of the principal and, therefore, allows an agent to transfer, sell or dispose of property, and otherwise manage his or her financial affairs, the agent should be a person the principal trusts implicitly. The principal must understand the scope of authority he or she is delegating to another person. The authority may include the power to make gifts of significant assets, to change beneficiary designations or to establish trusts.
A Durable Power of Attorney can be revoked by a competent principal at any time. A Durable Power of Attorney remains in effect even if the principal subsequently becomes incompetent. If a person becomes incompetent without having executed a Durable Power of Attorney, then a guardian will have to be appointed to handle the incapacitated person's business and personal affairs. Unfortunately, a guardianship requires a lengthy and expensive court proceeding. Therefore, most Elder Law or Estate attorneys recommend that their clients execute a Durable Power of Attorney as part of estate planning.
Springing Power Of Attorney
If a person is reluctant or unwilling to grant another person immediate authority under a Durable Power of Attorney, another option is a Springing Power of Attorney. A Springing Power of Attorney has a provision that delays its effectiveness until a future time or upon the happening of an event specified in the document, such as the incapacity of the principal. This permits the principal to determine the circumstances that will activate the agent's authority to act for the principal. However, the nature of the Springing Power of Attorney presents problems because it is not effective until a future date or upon the happening of an event, usually related to the principal's health. Therefore, there may be a question as to what proof may be necessary before a third party or institution will honor the springing power.