Will your Power of Attorney have the juice when you need it?

In another article  talked about joint tenancy as an alternative to a revocable living trust (RLT) and discussed some of the pros and cons of both.  Today I am going to talk about how a Durable Power of Attorney stacks up against the RLT as far as incapacity planning.  First, let me define a Durable Power of Attorney.  A Durable Power of Attorney is a legal document that enables an individual to designate another person, called the attorney-in-fact, to act on his/her behalf, even in the event the individual becomes disabled or incapacitated. It is called “Durable” because it continues to be effective even if you become incapacitated. So, if you are incapacitated, your “attorney-in-fact” or agent, can use the Durable Power of Attorney to go to the bank and withdraw money, can sign documents to sell or transfer real estate, or pretty much anything that might need to be done on your behalf.

Short form Durable Power of Attorney vs. Long Form.

I use two different forms of Durable Powers of Attorney, a short form and a long form.  The short form is two pages and lists the powers of the agent in summary form.  The long form is about 30 pages and it goes into great detail about the agent’s powers.  One of the reasons I use both is because financial institutions sometimes balk at acting based on the shorter form if it doesn’t explicitly spell out the authority for the proposed action. 

Some problems.

Some institutions will even refuse to honor any power of attorney unless it is on their own form.  This is unfortunate, especially because most states have statutes that absolve institutions is they honor a power of attorney that appears to valid on its face.  Even if you use the bank’s own, they may be reluctant to honor a power of attorney because they may be worried about their liability for elder financial abuse.  The larceny conviction of Brooke Astor’s son, who was able to steal more than $12 million from her using a power of attorney she gave him, while she was incapacitated,  is a notable example of this type of financial abuse.  

Banks know that even perfectly legal powers of attorney can be used for the illegal purpose of siphoning money out of the bank accounts of older individuals.  Because of this fear, some banks are refusing to honor POA’s that are older than one year. 

How a revocable Living Trust protects you in the event of incapacity.

One of the safest ways to prepare for possible incapacity is through a revocable living trust.  When you “fund” your RLT, you do so by re-titling your bank or brokerage accounts in the name of the trust, using language such as “John Sample, trustee of the John Sample Revocable Living Trust, dated March 29, 2012. “  At this point, ownership and control of the trust property rests in the hands of the person serving as trustee. Initially that will be you, but you also name a successor trustee in case you die or become incapacitated.  So, if you suffer an illness or injury that causes you to become disabled, your successor trustee will have the authority to manage the trust funds for your benefit. This also helps you to avoid the need for a court-appointed guardian or conservator. The institution may want to review the trust, or an abstract of the trust, to verify that the person attempting to access the funds is the designated successor trustee, but generally they are much less likely to refuse to act.  

So, while a Durable Power of Attorney should be a part of your estate plan, it may not fully protect you in the event of incapacity.  An RLT, properly funded (meaning your assets are actually put into the trust), may be a safer way to accomplish that goal. is