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To spring or not to spring?

A financial power of attorney (POA) can be a critical component of your estate plan. It appoints a trusted representative (often called an agent) to make financial decisions on your behalf in the event you’re unable to do so.

Without a POA, if you become incapacitated because of an accident or illness, your loved ones won’t be able to manage your finances without going through the lengthy and expensive process of petitioning the court for guardianship or conservatorship.To ensure that financial decisions or tasks don’t fall through the cracks,consider executing a financial POA, also known as a POA for property. This document authorizes your agent to manage your investments, pay your bills, file tax returns and otherwise handle your finances, within the limits you set.

Springing vs. durable POA

One important decision you’ll need to make is whether your POA should be “springing” —effective when certain conditions are met — or nonspringing (also known as “durable”) which is effective immediately.

A springing POA activates under certain conditions, typically when you become incapacitated and can no longer act for yourself. In most cases, to act on your behalf, your agent must present a financial institution or other third party with the POA as well as a written certification from a licensed physician stating that you’re unable to manageyour financial affairs.

While a springing POA lets you retain full control over your finances while you’re able, a durable POA offerssome distinctadvantages:

• A durable POAtakes effect immediately, allowing your agent to act on your behalf for your convenience, not just when you’re incapacitated. For example, you might ask your agent to conduct a business or real estate transaction on your behalf while you’re traveling abroad.
• If you do become incapacitated, a durable POA allows your agent to act quickly on your behalf, to handle urgent financial matterswithout the need for a physician to certify that you’ve become incapacitated. With a springing POA, the physician certification requirement can lead to delays, disputes or even litigation at a time when quick, decisive action is critical.
• Durable POAs may also be advantageous for elderly individuals, who are mentally capable of handling their affairs but prefer to have assistance.

Durable POAs have one important disadvantage. That is, some people are uncomfortable with a POA that takes effect immediately because they’re concerned that their agents may be tempted to abuse their authority or commit fraud. However, if you can’t fully trust an agent with an immediate POA, it’s even riskier to rely on them when you’re incapacitated and unable to protect yourself. 

In light of the advantages of durable POAs and the potential delays caused by springing POAs, the best approach is to grant a durable POA to someone you trust completely, such as your spouse or one of your children. If you’d like added security, consider asking your attorney or another trusted advisor to hold the durable POA and deliver it to the designated agent only when you instruct them to do so or you become incapacitated.

Keep your POAs fresh

Although this article has focused on financial POAs, similar considerations apply to health care POAs (also known as health care proxies). To ensure that your wishes are carried out, it’s advisable to prepare and sign financial and health care POAs as soon as possible and to let your loved ones know where to find them.

It’s also a good idea to sign new POAs periodically. Financial institutions and health care providers may hesitate to honor POAs that are years or decades old.

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