Most estate plans, even those which include a revocable living trust, include a financial power of attorney. This power of attorney gives the named agent (attorney-in-fact) the authority over the property owned by the principal (person signing the power of attorney). A power of attorney usually includes a list of specific property and associated authority granted to the agent. The agent appointed under a financial power of attorney does not have authority over the management and distribution of any assets owned in the name of a revocable living trust. The agent can be given the authority to establish a trust on your behalf and transfer assets into the name of the trust.
Financial powers of attorney can become effective at two different times. The most typical is the “springing” power of attorney, which become effective at your medically declared incapacity, usually by two doctors. Financial powers of attorney can also be effective immediately upon signing. An immediate power of attorney is used when the principal currently needs assistance with their financial affairs.
Financial power of attorney can either be limited or general. A limited power of attorney is either for a specific transaction, specific authority or a specific time period. A general power of attorney will apply to all of the property owned by the decedent. For estate planning purposes, a general power of attorney is usually prepared. A general power of attorney remains in force until its revoked, replaced or the principal dies. The authority granted by a financial power of attorney ends with your passing.
The principal must have capacity when a power of attorney is signed. Unless it includes some very specific language, a power of attorney is not valid once the principal is declared medically incapacitated. As a result, for estate planning purposes, a financial power of attorney needs to be “durable.” A “durable” power of attorney is one under which the authority continues after a medically declared incapacity. A durable financial power of attorney avoids the need to have a conservator appointed if the principal becomes incapacitated.