A durable power of attorney (DPA) for property management is the best protection against the financial consequences of becoming disabled. A DPA is a document often drafted by an estate attorney in which one person (the principal) gives legal authority to another person (the attorney-in-fact) to act on the principal’s behalf. In California, probate law allows for the DPA to provide that it is “durable”; that is, that it will continue in effect after you become incapacitated. It terminates at your death or cancellation (you can cancel it at any time), or at a time you specify.
A DPA’s flexibility is one of its main advantages. You can limit the authority of the attorney-in-fact in the document, giving him or her as many or as few powers over your property as you wish, attaching conditions and so on. You should check with an attorney before executing a DPA.
The DPA lets you appoint an attorney-in-fact (usually your spouse or child) to manage all or part of your business or personal affairs. The law imposes the responsibility on the attorney-in-fact to act as your fiduciary, but it might be difficult for you or you family to take him or her to court. Since this person can in effect do anything with your money, you should be sure to appoint someone you trust and in whose judgment and ability you have confidence.
Why sign a power of attorney: one good reason is to avoid conservatorship or guardianship proceedings held in California probate court.
Almost everyone can benefit from a durable power of attorney for property management. If you don’t have a durable power of attorney and you become incapacitated, your relatives or other loved ones will have to ask a judge to name someone to manage your financial affairs. In California, the person appointed to manage your finances may be called a conservator.
Conservatorship or guardianship proceedings in probate court can be expensive and embarrassing. Your loved ones must ask the court to rule that you cannot take care of your own affairs — a public airing of a private matter. Probate court proceedings are matters of public record. And if relatives fight over who is to be the conservator or guardian, the proceedings will surely become even more disagreeable. All of this causes increased costs, especially if lawyers in Los Angeles, Santa Barbara, Ventura or Orange county must be hired.
You May Think You Don’t Need a Durable Power of Attorney
You may not think that you need a durable power of attorney for finances if you’re married or if you’ve put most of your property into a living trust or you hold it in joint tenancy. But the truth is that in all of these situations, a durable power of attorney can make life much easier for your family if you become incapacitated.
If You Are Married
If you are married, your spouse has some authority over property you own together. For example, there may be authority to pay bills from a joint bank account or sell stock in a joint brokerage account. There are significant limits, however, on your spouse’s right to sell property owned by both of you. For example, in California, both spouses must agree to the sale of co-owned real estate. Because an incapacitated spouse can’t consent to such a sale, the other spouse’s hands are tied.
When it comes to property that belongs only to you, your spouse has no legal authority without a durable power of attorney.
If You Have a Living Trust
A living trust isn’t a substitute for a durable power of attorney for property management, but it can be useful if you become incapable of taking care of your financial affairs. That’s because the person who will distribute trust property after your death (called the successor trustee) also, in most cases, has authority to take over management of the trust property if you become incapacitated.
However, the successor trustee has no authority over property not held in the trust. Most people don’t transfer all their property to a living trust; most transfer only assets that are expensive to probate, such as your home, other real estate and valuable securities. A durable power of attorney ensures that someone will be on hand to take care of other property, as well as day-to-day financial tasks.
If you think someone is likely to go to court and challenge your durable power of attorney or claim that you were coerced into signing it, you can take several steps to prevent problems.
Sign Your Document in Front of Witnesses. You can sign your document in front of witnesses, even if not legally required by California state law. After watching you sign, the witnesses themselves sign a statement that you appeared to know what you were signing and that you did so voluntarily. If someone later challenges your competency, these statements will be strong evidence that you were of sound mind at the time you signed your document.
See a Lawyer. You may want the lawyer to draw up some documents for you. An experienced estate planning lawyer can answer questions about your durable power of attorney and about your other estate planning documents too. For example, you may be expecting challenges to your will, a trust or advance health care directive. The point is to have the lawyer ease your concerns by answering your questions and confirming that your estate plan will hold up against challenges. Your attorney can also testify about your mental competency, if needed.
Make a Videotape. You can also videotape a statement of your intent to make and sign the durable power of attorney. This should be unnecessary, but going to this length may further reduce the chances of a successful challenge to your competency. It is very important to keep in mind, however, that using a videotape may work against you. The person challenging your power of attorney document will want to use any visible quirks of behavior or language as evidence that you were not in fact competent when you made your document. If you do make a videotape, keep this tape with your power of attorney document.
Get a Doctor’s Statement. You may also want to get a doctor’s statement around the time you sign your durable power of attorney. The doctor should write, date and sign a short statement saying that he or she has seen you recently and believes you to be of sound mind. You can attach this statement to your power of attorney document. Then, when necessary, your attorney-in-fact can produce the statement as proof that you were of sound mind when you signed your power of attorney.
These issues, as well as other estate planning topics, are the kind that Mitchell A. Port addresses with his clients every day. To speak with an experienced estate planning attorney, call Mitchell at 310.559.5259.