From Solomon, Steiner & Peck
Though you are likely in good health now and can handle your own financial transactions and health care decisions, there is always a chance you could lose that ability. It could happen suddenly, as with a car accident, or gradually, as with dementia. Planning for the possibility of incapacity is an important part of estate planning.
In creating an estate plan, your attorney will ask you to nominate people you trust to make financial and health care decisions on your behalf if you ever become unable to do so. Your completed estate planning packet will likely include two documents addressing these decisions: one for legal and financial matters and the other for medical treatment decisions. These documents are both power of attorney documents.
A power of attorney (POA) is a legal document that allows an individual (known as the principal) to give another person (their agent or attorney-in-fact) the authority to act on their behalf. Though many people are familiar with the general concept of POAs, not everyone understands the different types of powers of attorney and how they work, especially durable powers of attorney.
What Is a Durable Power of Attorney?
A durable power of attorney (DPOA) is a POA that remains valid even if the principal becomes incapacitated (unable to make or communicate decisions for themselves). The word “durable” refers to its endurance through someone’s loss of capacity. Without this durability, the authority your agent has would end if you became unable to make your own decisions.
Durable POAs are commonly used in estate planning, health care planning, and financial management. They give family members and trusted individuals the legal authority to step in when needed without having to go through lengthy court proceedings. Because the agent may have broad powers, choosing the right person is crucial. Abuse of POA authority does happen, so it’s best to select someone trustworthy and, if possible, have checks and balances in place.
When creating an estate plan, some people will choose different trusted individuals for their durable general (financial and legal) POA and their durable health care (medical) POA. Making this distinction can help spread the responsibilities among different trusted people. This strategy also considers that some agents would be better at handling financial decisions and others better with medical decisions.
The key difference between a power of attorney and a durable power of attorney is whether the authority survives the principal’s incapacity.
Power of Attorney
If a POA doesn’t explicitly state that it is durable, then in most states it is assumed to be nondurable by default. A nondurable POA is typically used for specific, limited transactions. For example, if someone is traveling abroad, they might grant a POA to a trusted person to sign real estate paperwork while they are away. Once the task is complete, or if the principal becomes incapacitated, the document is no longer valid.
Durable Power of Attorney
A durable POA is longer lasting and usually broader in scope. It remains valid even if the principal experiences a serious injury or illness or cognitive decline. Executing a DPOA can prove particularly important in situations involving aging, chronic illness, or unexpected medical events.
In short, POAs are temporary tools for convenience and durable POAs are safeguards for long-term planning.
A durable POA can cover a wide range of decisions, depending on how it is written. Some common uses include:
- Decisions regarding financial affairs. Paying bills, managing investments, handling tax returns, and maintaining bank accounts.
- Real estate transactions. Selling, buying, or managing property if the principal cannot handle the paperwork.
- Health care decisions. When paired with a health care power of attorney, often a standalone document, the agent may make medical decisions if the principal is incapacitated.
- Legal matters. Signing contracts or managing lawsuits on behalf of the principal.
