THE ATTORNEY'S CORNER: POWERS OF ATTORNEY & ESTATE PLANNING

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By Stephen C. Ross, Esq.

April 23, 2013 (San Diego County) – A power of attorney (POA) is a written document wherein a person (the principal) appoints another person (the agent) to transact business and manage property on behalf of the principal. A POA has many purposes in estate planning, including: allowing the agent to transfer property into a revocable trust that is the principal’s primary estate planning tool; facilitating gifts to take advantage of the federal annual gift tax exclusion; and, allowing the agent to operate the principal’s business that is not included in a trust.

A POA may be general or limited. A POA is general unless specifically limited in the document creating it. A general POA authorizes the agent to transact all business for the principal and manage the principal’s property. However, certain powers must be specifically granted to the agent, including: creating, modifying or revoking a trust; making or revoking a gift of the principal’s property; designating or changing the designation of beneficiaries entitled to receive property at the principal’s death; and, making a loan to the agent. Typically, an estate plan will include a general POA because the principal wants the agent to be able to handle all his or her financial affairs in the event he or she becomes incompetent. In certain circumstances, the principal may want to create a limited POA to limit the agent’s authority to a specific time period, a certain asset or to specified actions or conditions. For example, the principal may be out of the country and unable to sign documents related to the sale of a particular asset. A limited POA could be used to authorize an agent to act for the principal only with regard to the sale of that asset.

A POA may be durable or nondurable. A durable POA either remains in effect or comes into effect upon the principal’s incapacitation. If the agent is authorized to act when the POA is signed, it should indicate the agent’s authority shall not be affected by the principal’s subsequent incapacity. If the agent’s authority becomes effective upon the principal’s incapacitation, it should contain language to that effect. An agent under a nondurable POA is not authorized to act if the principal becomes incapacitated. A limited POA is typically nondurable.

A POA may be effective immediately or springing. An immediately effective durable POA is effective upon signing and gives the agent authority to manage the principal’s property, even if the principal becomes unable to do so. A springing durable POA becomes effective only after it has been determined the principal is incapacitated. The principal’s incapacity can be determined in several ways, including: a written opinion by any licensed physician that the principal is incapacitated; a written opinion by the principal’s treating physician that the principal is incapacitated; written opinions by two licensed physicians, one of whom is the principal’s treating physician that the principal is incapacitated; and, written opinions by a trusted friend and a licensed physician that the principal is incapacitated.

There are several ways to terminate a POA. The principal can revoke a POA either by the terms of the power or by another writing. The agent’s authority is revoked when the principal, orally or in writing, informs the agent the authority is revoked or informs the agent of the circumstances by which the power is revoked. With certain exceptions, the agent’s authority to act is terminated by the principal’s death. The agent’s authority is also terminated by the agent’s death, resignation, incapacity or failure to act. Unless limited by the POA, the principal’s designation of a spouse as agent is automatically revoked when the principal’s marriage to the agent is dissolved or annulled.

Stephen represents estate planning, trust, will, probate, trust administration, business formation, stepparent adoption and family law matters. He conducts estate planning and probate seminars throughout San Diego County. For more information or to schedule a seminar contact Stephen at (619) 795-8524, stephen@stephenrosslaw.com or visit www.stephenrosslaw.com.

Disclaimer: Information contained in this article is believed to be accurate. However, you should seek professional legal advice before relying on the information.