Financial Durable Power of Attorney
1. What is a Financial Durable Power of Attorney?
A financial durable power of attorney is a personal legal document that nominates someone (the “agent”) to manage financial affairs on behalf of the person signing the document (the “principal”). The document may be drafted to be effective immediately but is usually not used unless the principal becomes incapacitated.
A financial durable power of attorney is also referred to as a general power of attorney or simply a durable power of attorney. The term "general" describes the nature of the document, which seeks to address all financial matters that could possibly arise. The term “durable” describes the duration of the document, which continues throughout a period of incapacity. To mitigate confusion I call the document a "financial power of attorney" in conversation to distinguish it from the health care power of attorney.
By signing a financial durable power of attorney the principal intends to eliminate the need for court involvement in the event the principal becomes incapacitated. For example, a bank in Arizona, may lock the account of an incapacitated person until a court-appointed conservator is approved to manage the account. However, the same bank has discretion under Arizona law to give control of the account to an agent named in a valid financial durable power of attorney.
2. What are the consequences of not having a Financial Durable Power of Attorney?
Without a valid financial durable power of attorney, it may be difficult for an incapacitated person’s caregivers to provide financial and medical support until someone is appointed by the local court as conservator. This process – referred to as a conservatorship proceeding – is expensive, time-consuming, and open to the general public. A lawyer must be appointed to represent the incapacitated person (the “ward”) throughout the process. The court will order investigations to determine whether the ward is incapacitated and whether the applicant is qualified to serve as conservator.
The risk is reduced when the incapacitated person is married and the spouse is a joint owner of all assets. However, there are many possible situations that still benefit from the availability of a financial durable power of attorney. For example, an employer may refuse to give a spouse the right to make changes to or withdrawals from a company retirement plan. A financial durable power of attorney would help resolve this problem.
3. Does a Financial Durable Power of Attorney address medical care?
No. A separate health care power of attorney should be used to nominate an agent for health decisions on the principal’s behalf.
4. Is there a required form to use?
No. Contrary to popular belief, there is no statutory form and the State of Arizona does not provide any sample forms. The Arizona forms commonly offered by self-help websites are based on forms written for other states and, therefore, there is some risk when relying on them.
A financial durable power of attorney is most likely to be honored when it was prepared simultaneously with the principal’s Will or living trust by an Arizona estate planning lawyer, and while the principal was still healthy and competent.
As many would attest from experience, even a lawyer’s form is not always honored. Financial durable powers of attorney are notorious for not being accepted for a wide variety of logical and illogical reasons. The popularity of revocable living trusts is partly in response to this reality.
5. When is the Financial Durable Power of Attorney effective?
A financial durable power of attorney is drafted to be either “springing” or “non-springing.” A springing power of attorney will become effective upon a formal determination of incapacity. The document will include a procedure for making this determination. A non-springing power of attorney is effective immediately upon signing. The non-springing power of attorney eliminates the need for any formal determination of incapacity, which can be very challenging and time-consuming to obtain when it is actually called for. My preference is to use a springing provision for single clients and a non-springing provision for married couples. My default preference makes an assumption that married individuals trust each other enough to name the other as agent in a Financial Durable Power of Attorney.
6. How often should a Financial Durable Power of Attorney be updated?
The best practice is to draw up and sign a new Financial Durable Power of Attorney at least every 10 years or perhaps annually if the principal has already been diagnosed with diminished mental capacity (but is still competent enough to sign the document).
About the Author
Thomas J. Bouman provides legal counsel in the areas of estate planning, estate administration, and asset protection. He brings a highly systematic approach to the practice of law, which is critically important when wading through the complex, and often bizarre, legal requirements associated with estate and trust law. Mr. Bouman is the author of the Arizona Estate Administration Answer Book and a prominent member of WealthCounsel, the nation’s premiere organization of estate planning attorneys.