Q’s and
A’s About Powers of Attorney
Ensuring protection of your financial affairs
No one likes to
contemplate the thought of being incapacitated. Nevertheless, it is
important to take precautions in the event you become incapable of managing
your financial affairs. One common method for ensuring some protection is to
establish a “durable power of attorney.” Here are the answers to several
questions about this powerful estate-planning technique.
Q. What is a power of attorney?
A. It is a legal document that authorizes another person (called the
“attorney-in-fact”) to act on your behalf. The power can be either
specific (e.g., limited to having someone sell your home or car) or broad. A
regular power of attorney is no longer valid after you become incapacitated.
In contrast, a “durable” power of attorney remains in effect if you become
incapacitated and terminates upon your death.
Q. Can I set up a durable power of attorney to take effect at the time I
become incapacitated?
A. It depends. This so-called “springing” power of attorney is not
authorized in all states. You must find out the applicable state law from an
experienced attorney. Similarly, you should rely on an attorney to do all
the necessary paperwork for the durable power of attorney.
Q. What if I change my mind about granting a power of attorney?
A. While you are competent, you may revoke a power of attorney (whether or
not it is durable) at any time for any reason. The best thing to do is to
notify the attorney-in-fact in writing. Also, notify other parties who may
be affected.
Q. Can a durable power of attorney be used for health care decisions?
A. Yes. For instance, you can establish the terms for deciding whether or
not you are incapacitated. In addition, it is important that you discuss
these matters in detail with the attorney-in-fact to give him or her more
guidance.
Q. How is this different from a living will?
A. A durable power of attorney gives another person the power to make
decisions in your best interests. In contrast, living wills provide specific
directions concerning terminally ill patients. Living wills are now
recognized in every state.
Q. Can I set up a durable power of attorney for a relative who is no
longer competent?
A. No. A durable power of attorney is binding only if the grantor of the
power was competent when it was drawn up. However, just because someone has
been diagnosed as having a specific disease does not mean that he or she is
incompetent. For instance, if an elderly person is suffering from
Alzheimer’s disease, it still may be possible to utilize a durable power of
attorney.
If you execute a power of attorney, it should be coordinated with other
aspects of your estate plan. Unless you have the requisite expertise, have a
professional handle the details. Please
contact us with any
questions.
Wherewithal
is provided by Somerset for our clients and other interested persons
upon request. Since technical information is presented in generalized
fashion, no final conclusion on these topics should be made without
further review. For additional information on the issues, please
contact
a member of the firm. Somerset provides total financial solutions,
including accounting, assurance, information solutions, litigation &
valuation, tax, wealth management and management consulting services to
entrepreneurs and their businesses. This document is not intended or
written to be used, and cannot be used, for the purpose of avoiding tax
penalties that may be imposed on the taxpayer.
Somerset CPAs,
P.C.
3925 River Crossing Parkway, Third Floor
Indianapolis, Indiana 46240
317.472.2200 • 800.469.7206 • FAX 317.208.1200
www.somersetcpas.com
info@somersetcpas.com
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