What is a durable power of attorney?

Why “durable” matters

Under traditional law, an agent's authority ended as soon as the principal lost mental capacity — exactly when help was most needed. Every state now allows a power of attorney to be made durable. Many states, including those that adopted the Uniform Power of Attorney Act, treat a power of attorney as durable unless it says otherwise; others still require specific wording such as “This power of attorney shall not be affected by subsequent disability or incapacity of the principal.”

Immediate vs. springing

• Immediate — effective as soon as it is signed. The agent can act right away, although the principal normally keeps managing their own affairs as long as they are able. Banks accept these more readily.
• Springing — effective only when the principal becomes incapacitated, usually confirmed by one or two doctors' written statements. It feels safer to some people, but it can cause delays in an emergency, and doctors may hesitate to certify incapacity. Some states, such as Florida, no longer allow new springing powers of attorney.

What it covers

A durable financial power of attorney typically lets the agent:

• Pay bills, deposit checks and manage bank and investment accounts.
• File tax returns and deal with the IRS.
• Manage, rent, sell or refinance real estate.
• Deal with Social Security, Medicare, Medicaid, pensions and insurance.
• Run or wind up a business.
• Hire caregivers and pay for long-term care.
• If expressly authorized, make gifts, fund a trust or change beneficiary designations — powers important for Medicaid and tax planning.

Medical decisions are usually covered by a separate health care power of attorney or health care proxy.

Durable power of attorney vs. guardianship

When someone loses capacity without a durable power of attorney, family members usually must petition a court for guardianship or conservatorship. That process involves medical evaluations, court hearings, legal fees, a public record and, often, annual accountings and bond requirements. It can take weeks to months, during which bills go unpaid and assets cannot be managed. A durable power of attorney signed in advance avoids most of that. Once capacity is lost, it is too late to sign one.

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Durable power of attorney vs. living trust

Both help during incapacity. A successor trustee controls only property in the trust; an agent under a power of attorney handles everything else — retirement accounts, tax matters, government benefits, and assets never moved into the trust. Most people with a trust also need a durable power of attorney.

Choosing an agent

Pick someone honest, financially responsible and willing to keep good records, and name at least one backup. Co-agents who must act together can provide checks but can slow things down; co-agents who can act separately are more flexible but offer less oversight. Some people require the agent to provide periodic accountings to another family member.

Protecting against abuse

Financial exploitation by agents is a real risk. Safeguards include naming a trusted agent, limiting or excluding gifting powers, requiring accountings, and informing other family members that the document exists. Banks can refuse to honor a power of attorney if they suspect abuse, and anyone can report suspected exploitation to Adult Protective Services. Agents who misuse their authority can be sued and prosecuted.

When banks refuse

Financial institutions sometimes reject older or unfamiliar forms. States that adopted the Uniform Power of Attorney Act require third parties to accept a properly acknowledged statutory-form power of attorney within a set time or explain why, and some allow penalties for unreasonable refusal. Using your state's statutory form and updating the document every several years reduces problems.

Ending a durable power of attorney

It ends when the principal dies, when the principal revokes it while competent, when a court removes the agent, or, in many states, when the agent is the principal's spouse and they divorce. After death, the executor or successor trustee takes over.

Getting one

Many states publish a statutory form, and estate planning attorneys usually include a durable power of attorney in a basic plan for a modest fee. Sign it with the formalities your state requires — usually a notary and sometimes witnesses — and keep the original in a place your agent can reach quickly.