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. Note: Sometimes, this term is also used to describe the person acting for you. 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 A regular power of attorney is no longer valid after you become incapacitated.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.

TAX ADVICE DISCLAIMER: In accordance with IRS Circular 230, any tax advice included in this communication, including attachments, is not intended or written to be used, and cannot be used by you or any other person or entity, for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code or applicable state or local tax law provisions, nor may any such advice be used to promote, market or recommend to another party any transaction or matter addressed within this communication. If you would like such advice, please contact us.