Dear Jonathan: Can you please explain what the difference is between a financial durable power of attorney and a health care durable power of attorney.
Jonathan: A financial durable power of attorney is a document in which you (the "principal) name another person (the "attorney-in-fact" or "agent") to act on your behalf regarding your affairs. Unlike the health care durable power of attorney which only takes effect once you have been determined to be legally incapacitated, a financial durable power of attorney comes in two varieties, a "non-springing" and a "springing" variety.
A non-springing financial durable power of attorney becomes effective immediately upon execution, which means that your agent can act for you even if you still have legal capacity.
A springing financial durable power of attorney, just like the health care durable power of attorney, only becomes effective or springs into action when you are no longer able to act. Your agent will, in fact, be prohibited from acting until there has been a determination that you are legally incapacitated. Getting that determination of incapacity can sometimes be challenging and it certainly will not be something that your agent will be able to obtain quickly in most cases. Consequently, most people prefer the flexibility of a non-springing financial durable power of attorney because its use is not dependent on proving the principal's disability.
A health care durable power of attorney is a document in which you (the "principal") name someone else (the "patient advocate") to make health care decisions for you when you are no longer able to participate in the making of those decisions. This document does not take effect, or spring into action, until you have been determined to be legally incapacitated and incapable of making your own health care decisions.
Dear Jonathan: I know that having a financial durable power of attorney is recommended and beneficial to have for many reasons. Are there any disadvantages that I should know about?
Jonathan: Yes. There are a few disadvantages you should be aware of, including:
- Getting third parties to accept a financial durable power of attorney can be a challenge. Even if the durable power of attorney is properly prepared and complies with state law, third parties, such as a bank or a title insurance company, may reject it because it doesn't include certain provisions or they may require that their specific form is used. In addition to the inconvenience, this could be problematic if you are disabled and unable to execute a new durable power of attorney to comply with a third party's demands.
- Not having enough back-up agents named in your durable power of attorney could be a problem. For instance, if the agent you have named isn't available to act or fails or refuses to act and you don't have a back-up agent named, then the instrument will fail because there is no one to act on your behalf. To minimize the risk of this happening, at least one and preferably two back-up agents should be named in the instrument.
- An agent with bad intentions could take advantage of you by using that instrument for their personal gain. You can minimize this risk by only appointing agents that you implicitly trust to act in your best interests.
Dear Jonathan: What happens if I become disabled and I have not prepared financial and health care durable powers of attorney?
Jonathan: If you have not implemented financial and health care durable powers of attorney prior to suffering a disability, someone will need to initiate court proceedings to be appointed your guardian and/or conservator. Until that happens, no one will be able to legally act on your behalf. This process takes time and costs money and once appointed your guardian and/or conservator will be subject to court oversight.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
