A very effective and popular estate planning device over the past decade has been the “durable” power of attorney. A power of attorney is a document a person (the “principal”) executes to give authority to another (the “agent”) to act on the principal’s behalf. The power can be severely limited to, say, a single transaction, or it can be broad enough to include all matters involving the estate of the principal; the latter is called a general power of attorney.
Originally a power of attorney became void automatically upon the principal’s death or mental incompetence, but in the late 1980’s a significant change occurred in Pennsylvania (and most states) which permitted the principal to give a general power of attorney that would not only be valid if he or she became incompetent but upon such occurrence would actually become irrevocable; or “durable”. So long as a principal is in a state of mental incompetency, a durable power gives the agent the power to transact all of the principal’s affairs unimpeded.
Effectively, the durable power can eliminate the costly and time-consuming process of seeking the appointment of a guardian by the court upon a person’s becoming mentally incompetent. Additionally, there is always the risk that the court might appoint a guardian who would be unacceptable to the incompetent person if he had his wits about him. With a durable power the principal selects exactly the person he or she feels is best (and most trusted) for the job.
Given the sweeping authority that a principal bestows upon an agent with a durable power, it is not something to be undertaken casually; and until death or mental incompetency occurs, the principal can always revoke the power or designate another as agent. Obviously, the durable power is something that should be taken down off the shelf, dusted, and reviewed on a regular basis.
An additional reason to revisit your durable power if you live in Pennsylvania can be found in a recent statute which became effective on December 8, 1999. Changes in both form and substance are mandated by the statute; and as to powers executed after that date, they can be of no effect unless certain criteria are met. Note that any power of attorney executed prior to December 8, 1999, is not made invalid though its provisions may be curtailed somewhat by the new law.
The new law apparently reflects abuses which have occurred under the prior law. An agent under a durable power is in a fiduciary relationship with the principal; i.e., the agent has extraordinary authority to run the financial affairs of the principal and therefore has a solemn obligation to perform, first and foremost, in an honest and honorable manner. The legislature has tightened the rules in an effort (a) to assure that the principal has a full appreciation of the significance of such a document; and (b) to remind the agent that if he or she misbehaves, there will be serious consequences.
For those considering the preparation of a durable power, two major questions present themselves. First, who should be selected to serve as your agent in the event of your incompetency, and second, how broad should the powers conferred upon that person be? Your agent should be a trusted friend or relative with good common sense and sound judgment. A local choice is preferable since the agent may have to appear personally to act on your behalf. How much authority over your affairs the agent is granted is directly related to your level of trust. If you have faith in your selected agent, give him or her the broadest authority to look after your welfare, secure in the knowledge that the new law will provide an added measure of protection.
Pitfalls considered, we continue to believe that the durable power is a potentially invaluable device in the estate planning process.
Originally a power of attorney became void automatically upon the principal’s death or mental incompetence, but in the late 1980’s a significant change occurred in Pennsylvania (and most states) which permitted the principal to give a general power of attorney that would not only be valid if he or she became incompetent but upon such occurrence would actually become irrevocable; or “durable”. So long as a principal is in a state of mental incompetency, a durable power gives the agent the power to transact all of the principal’s affairs unimpeded.
Effectively, the durable power can eliminate the costly and time-consuming process of seeking the appointment of a guardian by the court upon a person’s becoming mentally incompetent. Additionally, there is always the risk that the court might appoint a guardian who would be unacceptable to the incompetent person if he had his wits about him. With a durable power the principal selects exactly the person he or she feels is best (and most trusted) for the job.
Given the sweeping authority that a principal bestows upon an agent with a durable power, it is not something to be undertaken casually; and until death or mental incompetency occurs, the principal can always revoke the power or designate another as agent. Obviously, the durable power is something that should be taken down off the shelf, dusted, and reviewed on a regular basis.
An additional reason to revisit your durable power if you live in Pennsylvania can be found in a recent statute which became effective on December 8, 1999. Changes in both form and substance are mandated by the statute; and as to powers executed after that date, they can be of no effect unless certain criteria are met. Note that any power of attorney executed prior to December 8, 1999, is not made invalid though its provisions may be curtailed somewhat by the new law.
The new law apparently reflects abuses which have occurred under the prior law. An agent under a durable power is in a fiduciary relationship with the principal; i.e., the agent has extraordinary authority to run the financial affairs of the principal and therefore has a solemn obligation to perform, first and foremost, in an honest and honorable manner. The legislature has tightened the rules in an effort (a) to assure that the principal has a full appreciation of the significance of such a document; and (b) to remind the agent that if he or she misbehaves, there will be serious consequences.
For those considering the preparation of a durable power, two major questions present themselves. First, who should be selected to serve as your agent in the event of your incompetency, and second, how broad should the powers conferred upon that person be? Your agent should be a trusted friend or relative with good common sense and sound judgment. A local choice is preferable since the agent may have to appear personally to act on your behalf. How much authority over your affairs the agent is granted is directly related to your level of trust. If you have faith in your selected agent, give him or her the broadest authority to look after your welfare, secure in the knowledge that the new law will provide an added measure of protection.
Pitfalls considered, we continue to believe that the durable power is a potentially invaluable device in the estate planning process.
– Ken Butera