WHAT IS A SPRINGING FINANCIAL POWER OF ATTORNEY?
Estate planning is about more than preparing for death. A good estate plan also considers the unexpected. Your plan may have detailed instructions for what happens to your belongings when you pass away, but what if something goes wrong while you're still alive?
If you can no longer manage your affairs, you will need somebody who can act on your behalf. A financial power of attorney (POA) is a legal document that allows someone else to make financial decisions for you if you can't on your own. For example, they can sign checks on your behalf, manage bank accounts in your name, etc. The financial POA can be immediate, meaning somebody else is authorized to act for you now and into the future, or it can be springing. A springing financial power of attorney is effective only if a specific event occurs (usually if you become incapacitated or severely mentally unwell).
While every estate plan should include a financial POA, a springing financial POA may only be useful in certain situations. If you try to draft a financial POA without the help of an attorney, you may miss legal nuances and cause problems for yourself in the future - problems that are not easily resolved. The experienced estate planning attorneys at DuPont & Blumenstiel in Dublin, Ohio can discuss your options with you, and draft estate planning documents that fit your goals.
HOW A SPRINGING FINANCIAL POA WORKS
A springing financial POA gets its name because it 'springs' into action only when you become incapacitated. This is different from an immediate financial power of attorney, which is not conditional. An immediate financial power of attorney gives another person broad legal authority to take over your responsibilities the moment it is signed. This concerns many people who don't wish to give up their independence and control over their money, understandable so. After a springing financial power of attorney has been signed, it remains inactive until it is needed.
DEFINING INCAPACITY
When, exactly, is a springing financial POA needed? Generally speaking, it is needed when you become incapacitated. Incapacity can mean many different things, including mental illness, mental deficiency, physical illness, physical disability, advanced age, drug abuse, or unusual events such as being kidnapped or disappearing.
You will be able to define incapacity in your financial POA as you see fit. A doctor (or two of them, if you set it up that way) must then examine you to confirm that you meet that definition of incapacity. When they sign off that you are medically incapacitated, the springing financial POA takes effect.
WHAT HAPPENS WHEN A SPRINGING FINANCIAL POA KICKS IN
When springing financial POA takes effect, the person you have named to handle your affairs—known as your agent—is now legally allowed to make financial decisions on your behalf. Ideally, in the way you would have wanted.
With any financial POA, whether immediate or springing, you can give your agent very specific instructions, or allow them to have more freedom to make decisions. For example, you may authorize your agent to manage your day-to-day finances, handle your investments, file your taxes, and operate your business. But you can also be a bit more restrictive. For example, you can limit your agent's power to only be able to pay your bills.
A financial POA can be revoked in the future when it is no longer needed. However, you need to make sure to use exact language in the document that specifies when the POA is to be revoked. It might state that you have the authority to revoke the financial POA at any time when you're not disabled or incapacitated. Keep in mind, though, that revocation may require medical verification. Also, all financial POAs are automatically revoked when you die.
POTENTIAL ISSUES WITH A SPRINGING POA
Giving somebody else authority under a financial POA involves some risk because they are typically not subject to ongoing oversight by a court or third party. The agent may abuse their powers and make decisions that are not in your best interest.
Not having a POA is also risky. If you become incapacitated without a financial POA, your family may need to petition the court to get a conservatorship or guardianship. This can take months and cost thousands of dollars. In the meantime, it may be impossible for anyone to manage your most important financial affairs. Bills may go unpaid, and your investments may be left without any oversight.
Setting up a springing financial POA helps avoid issues related to incapacity without giving your agent premature access to your affairs. But before your draft a financial POA, you should be aware of the following issues:
Lag in effect. A springing financial POA does not take effect until you have been medically determined incapacitated. This process takes time. Expect delays.
Uncertainty about incapacity. Disputes may arise if you are in a state of slow decline, have good days and bad days, or when you have alternating moments of clarity and confusion. Doctors, family members, and your agent could be in disagreement about whether you are incapacitated. This could go all the way to a dispute in court. Until the uncertainty about your incapacity is settled, the agent has no authority to act.
Financial institutions. Banks may be nervous about granting access to a customer’s account and have been known to decline financial POAs. In the case of a springing financial POA, the bank will want to see the document, the physician’s letter, and other documents to verify that the financial POA has been activated. Even then, they may refuse to honor the financial POA right away. Some banks have their own forms for appointing an agent to manage your accounts. To avoid future trouble, it is important that you ask your bank about their specific requirements. In addition, you may wish to consult an experienced estate planning attorney about how a revocable living trust can serve your needs if you become incapacitated.
State laws. Each state has its own laws about springing POAs. Some states may not even permit them. Your POA must comply with state law to be legally enforceable in your state. If you move to another state, consider reviewing and updating your POA to ensure that it complies with that state’s law.
A financial power of attorney is one of the most important estate planning documents you can have. If you have concerns that an immediate POA is overreaching, a springing power of attorney may be a good alternative. There are many estate planning tools out there that can offer you peace of mind. Consider discussing a medical power of attorney, advance healthcare directive, and/or a revocable living trust with your estate planning attorney. The experienced estate planning attorneys at DuPont and Blumenstiel can help you decide what documents are right for you. Call our office at 614-389-9711 to schedule a consultation.
To learn more about estate planning, read our Consumer's Guide to Estate Planning in Ohio here.