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