The Durable Power of Attorney

For most people, the durable power of attorney is the most important estate planning instrument available--even more useful than a Last Will and Testament. A power of attorney allows a person you appoint -- your "attorney-in-fact" or “agent” -- to act in your place for financial purposes when and if you ever become incapacitated.

In that case, the person you choose will be able to step in and take care of your financial affairs. Without a durable power of attorney, no one can represent you unless a court appoints a conservator or guardian. That court process takes time, costs money, and the judge may not choose the person you would prefer. In addition, under a guardianship or conservatorship, your representative may have to seek court permission to take planning steps that she could implement immediately under a simple durable power of attorney. 

These rules even apply between spouses.  If your spouse is incapacitated, you cannot sign his name to a deed, withdraw assets from his IRA or cash his pension check.  The reason for this is our system of law provides that once we are adults at age 18, no one else can make legal, financial or health care decisions for us.  That is the independence we enjoy as Americans.  This is very beneficial until we become incapacitated.  Then, in order to protect our rights, a probate court has to first verify that we are incapacitated by holding a hearing to determine if we are incompetent.  If the judge believes we are incompetent, the judge must then appoint someone to act on our behalf to make financial decisions (a Conservator) and medical and personal decisions (a Guardian).  These rules apply regardless if we are married or single.

In Michigan, the law also provides that you can opt out of the probate system by creating an estate plan in advance.

A power of attorney may be limited or general. A limited power of attorney may give someone the right to sign a deed to property on a day when you are out of town. Or it may allow someone to sign checks for you. A general power is comprehensive and gives your agent all the powers and rights that you have yourself over your property.  The law requires that your agent only exercise this authority in your bests interests.

A power of attorney may also be either current or "springing." Most powers of attorney take effect immediately upon their execution, even if the understanding is that they will not be used until and unless you become incapacitated. However, the document can also be written so that it does not become effective until such incapacity occurs. In such cases, it is very important that the standard for determining incapacity and triggering the power of attorney be clearly laid out in the document itself.

However, some individuals experience difficulty in getting banks or other financial institutions to recognize the authority of an agent under a durable power of attorney. A certain amount of caution on the part of financial institutions is understandable: When someone steps forward claiming to represent the account holder, the financial institution wants to verify that the agent indeed has the authority to act for the principal. Still, some institutions go overboard, for example requiring that the agent indemnify them against any loss. Many banks or other financial institutions have their own standard power of attorney forms. To avoid problems, you may want to execute such forms offered by the institutions with which you have accounts. In addition, many attorneys counsel their clients to create living trusts in part to avoid this sort of problem with powers of attorney.

While you should seriously consider executing a durable power of attorney, if you do not have someone you trust to appoint it may be more appropriate to have the probate court looking over the shoulder of the person who is handling your affairs through a guardianship or conservatorship. In that case, you may execute a limited durable power of attorney simply nominating the person you want to serve as your conservator or guardian. Most states require the court to respect your nomination unless there is a good reason not to.

One important fact to remember about Powers of Attorney is that your agent ceases to have any authority to make financial decisions the moment you pass away.  This is because the law provides a power of attorney is only a grant of authority that has any effect while you are alive.  As such, Powers of Attorney do not work to avoid probate or distribute your estate after your death.  That is why a Last Will and Testament or Trust should be part of the estate plan.