A General Power of Attorney is a basic estate planning document that is essential to have in the event of your incapacity. This document provides answers to some frequently asked questions about a General Power of Attorney and the role it serves in your estate plan.
What is a General Power of Attorney?
A General Power of Attorney is a legal document that confers upon another person broad powers to manage your assets and administer your financial affairs. The person to whom the power is granted is called your agent, or attorney-in-fact. A General Power of Attorney can be distinguished from a limited power of attorney in that it grants broad powers to act on your behalf; a limited power of attorney allows an agent to act for you only with respect to a specific, or limited, purpose.
What are the benefits of a General Power of Attorney?
A General Power of Attorney ensures that the person YOU choose – not the person chosen by a court – is in charge of your affairs in the event of your incapacity. A General Power of Attorney can allow your family to avoid expensive and intrusive court proceedings that can cost thousands of dollars and impose an unnecessary burden on your loved ones.
Who should execute a General Power of Attorney?
Everyone should have a general power of attorney. Unfortunately, all of us are vulnerable to misfortune at any age, whether it be an auto accident or an unexpected illness. If something happened to you tomorrow, you would want to know that your affairs would be taken care of by someone you trust and that your loved ones would be spared costly and burdensome court proceedings.
When does a General Power of Attorney go into effect?
There are two types of General Powers of Attorney that are used for estate planning purposes: a durable power and a springing power. A durable power of attorney goes into effect immediately and continues in force in the event you become incapacitated. A springing power of attorney only goes into effect if you become incapacitated. It generally requires a written statement from one or more physicians that you are physically or mentally incapable of managing your financial affairs. Once in effect, the springing power of attorney continues until you are no longer incapacitated.
While a springing power of attorney provides more protection for the person granting the power, it may result in unnecessary delays and paperwork compared to the durable power of attorney. Due to liability concerns, some doctors may be reluctant to certify that an individual is incapacitated, which could result in unwanted court proceedings. To avoid these risks, it is generally preferable to execute a durable power of attorney if you are comfortable doing so.
What happens if I don’t have a General Power of Attorney?
In the absence of a General Power of Attorney, your loved ones may be forced to file a guardianship proceeding with a court in the event you become incapacitated. A guardianship proceeding is a public proceeding in which your loved ones must prove to the court that you are incapable of managing your affairs – an emotionally challenging task that can be embarrassing for you both. If the court rules that you are incapacitated, it will impose a guardianship – meaning that a person of the court’s choosing will be appointed to manage your affairs. The guardian will be required to report to the court on a periodic basis regarding your expenses, how your money is being invested, and your health status. Guardianship proceedings can cost thousands of dollars and result in unnecessary emotional strain on your family.
Whom should I designate as my agent?
Whom you appoint as your agent is a personal decision that should be made with great care. The person should be someone in whom you have a high degree of trust. You may also consider the person’s ability to manage your financial affairs and their geographic proximity. You should name at least one alternate agent in case your first choice is unavailable to serve.
Should I discuss the issue with the person I’ve chosen?
Yes. Before naming someone as your agent, you should discuss the issue with that person to ensure that he or she is willing to serve in that role. You may also wish to discuss specific issues regarding your finances or required maintenance of your properties. You should inform your agent about any electronic accounts and make sure he or she would be able to access them if necessary.
What if I change my mind about the person I’ve designated as my agent?
You can revoke your General Power of Attorney and name someone else at any time. If you name your spouse and subsequently divorce, the power of attorney to that person is automatically null and void.
What are the risks of a General Power of Attorney?
A General Power of Attorney gives your agent access to your most sensitive financial information and can be used to commit fraud if placed in the wrong hands. You should only grant a power of attorney to someone in whom you have complete trust.
Does a General Power of Attorney affect how my assets are distributed after my death?
No. A power of attorney lapses upon your death. Only the executor of your estate who is named in your will or appointed by the court has authority over the assets in your estate.