A power of attorney for financial affairs (sometimes called a power of attorney for business) is an important component of an estate plan. A power of attorney is a written instrument by which one person (called the “principal”) grants to another person (called the “attorney-in-fact” or more commonly, the “agent”) the authority to act on behalf of the principal.
A power of attorney can be “special” or “general.” A special power of attorney is typically used to allow the agent to act for the principal in a particular transaction, such as the sale of real estate or the exercise of stock options. At Barr & Young Attorneys we have drafted Special Powers of Attorney for Chevron and Bechtel employees that allowed their agents to sell or rent their homes in the Bay Area while they were assigned overseas. Because special powers of attorney are limited in scope, a general power of attorney is usually more appropriate in most estate plans.
A general power of attorney is usually very broad in scope. It typically allows the agent to do anything the principal could do on his or her own behalf. Thus, the agent is usually given the power to buy, sell, or rent real estate; sell or buy stocks, bonds or other securities; open or close financial accounts; sign contracts that bind the principal; and sign and file tax returns, among other things. Many general powers of attorney limit the agent’s power to engage in certain transactions, such as making gifts of the principal’s property to the agent or exercising powers granted to the principal as trustee of a trust. Nevertheless, most general powers of attorney give the agent extraordinary powers over the principal’s financial affairs.
A power of attorney may be “durable” or “non-durable.” A durable power is one that remains effective even when the principal is incapacitated. A non-durable power becomes ineffective upon the principal’s incapacity. Because most clients want their powers of attorney to be used only if they become incapacitated, most general powers of attorney inCaliforniaa durable.
Because of the enormous power of these documents (the power to empty the principal’s bank accounts and sell all their property, for example) clients should name only the most trustworthy family members or friends, or a professional fiduciary, as their agent. To ensure that a power of attorney is not used until it is absolutely necessary, a “springing” power of attorney is often appropriate.
A springing power of attorney only becomes effective upon the occurrence of a particular triggering event, typically the incapacity of the principal. The triggering event is often the written statement by one or two physicians that the principal is unable to manage their own financial affairs.
A non-springing power of attorney, on the other hand, becomes effective when it is executed by the principal. This choice – between a springing power or a power that is effective immediately, is one of the most important decisions a client makes in planning for their incapacity. Older clients with trustworthy children are often best served by a power of attorney effective immediately because it avoids a scramble to find doctors willing to sign a capacity declaration when the principal becomes incapacitated. Most clients, however, feel more comfortable with a springing power of attorney.
Finally, powers of attorney for financial affairs typically do not give the agent the authority to make heath care decisions for the principal. Those powers are typically granted in an “advance health care directive” or “power of attorney for health care,” which are discussed in a subsequent post.
Based in Danville,California, near Walnut Creekand San Ramon, our attorneys have drafted special and general powers of attorney for clients throughoutNorthern California.