A power of attorney is, by far, one of the most commonly recognized and frequently used legal documents. A power of attorney can be a valuable addition to your comprehensive estate plan as well; however, it is not always the best option. If you have been asked to execute a power of attorney, or you are simply contemplating how one might fit into your estate plan, it is best to first consult with your North Dakota estate planning attorney. In the meantime, it may be helpful to gain a better understanding of exactly what a power of attorney is, how one can be used, and when one is the best choice for an estate planning goal or objective.
What Is a Power of Attorney?
A power of attorney, or POA, is a legal agreement whereby the Principal (the person granting authority) grants authority to an Agent to act on behalf of the Principal in legal matters. The extent of the authority granted to an Agent by a Principal will depend on the type of POA the Principal executed. Under a general POA an Agent has virtually unfettered authority to act on behalf of the Principal, meaning the Agent can use the POA to do things such as withdraw funds from the Principal’s bank account, enter into a contract in the Principal’s name, and even sell assets owned by the Principal. On the other hand, an Agent with a limited, or special, POA only has the authority specifically enumerated in the POA agreement. A parent, for instance, might grant a caregiver a limited POA that allows the caregiver (Agent) to consent to medical treatment for a minor child in the parent’s (Principal’s) absence. An Agent with limited POA authority might also be limited to acting on behalf of the Principal at the closing on the sale of the Principal’s house.
What Is a Durable Power of Attorney?
A traditional power of attorney terminated upon the death or incapacity of the Principal. For many people, however, the possibility of their own incapacity is precisely why they wanted a POA in place. Understandably, the reason they wanted to execute a POA in the first place was because they wanted to give someone the ability to act on their behalf in the event they became incapacitated. With that in mind, the durable power of attorney evolved. A durable POA is simply a power of attorney that survives the incapacity of the Principal.
Is a Power of Attorney the Best Option for Your Estate Plan?
A power of attorney can be a very effective and useful legal tool; however, it is not always the best choice for estate planning purposes. People often think that giving a spouse, for example, a general power of attorney takes care of just about everything when, in fact, it often does not. First, if the POA is not durable I will only give your spouse authority to act on your behalf when you are able to do so yourself. That may be helpful if you are out of town, but it will not help if you suddenly suffer an incapacitating accident. Second, although a general POA grants considerable authority to the Agent, there are limitations to that authority. Even a durable general POA, for instance, does not usually give an Agent the ability to make healthcare decisions for the Principal. For that, you need to execute a specific type of legal document known as an Advanced Directive. Finally, although third parties are legally required to honor an Agent’s authority under a POA, the reality is that they often do not – or they give the Agent a difficult time using the authority granted under the POA agreement. If all you wish to do is give someone very limited legal authority to act on your behalf for a specific purpose and/or period of time, a POA may be the best choice; however, for other purposes it may be best to consider other options.
What Other Options Are Available?
Your North Dakota estate planning attorney can review all of your other options with you; however, an example may help you understand why you should consult with your attorney about those options. If your goal is incapacity planning related, a revocable living trust may be a better choice. A revocable living trust works as an incapacity planning tool by allowing you to create the trust and appoint yourself as the Trustee of the trust. You then appoint the person you wish to take over control of your assets should you become incapacitated as the successor Trustee. Major assets are then transferred into the trust for you to manage as long as you are able to do so. You also include trust terms that allow the successor Trustee to take over for you in the event of your incapacity, allowing for a relatively quick and simple transition to the successor Trustee if you become incapacitated.
If you have additional questions about executing or creating a power of attorney in the State of North Dakota contact the experienced estate planning attorneys at German Law Group by calling 701-738-0060 to schedule an appointment.