What Is a Durable Power of Attorney?
A durable power of attorney is a type of power of attorney through which a person gives an agent certain powers to exercise on his behalf. While a general power of attorney ceases automatically if the person who made it loses his mental capacity, a durable power of attorney stays in effect even if the person who has made it has become incapacitated or unable to handle matters on his own. Hence a durable power of attorney is used to give certain instructions as to how certain affairs are to be handled when the person is making it no longer has the ability to make decisions for himself.
With a durable power of attorney, the person who is named in it as the agent will be legally permitted to take care of all the important matters for the person making it if the person is unable to do so himself. These powers may include financial acts such as paying bills, managing investments or acts related to the healthcare of a person, such as making decisions relating to his medical care.
What Is the Difference Between a Power of Attorney and a Durable Power of Attorney?
The difference between a general power of attorney and a durable power of attorney is a small but important one. A regular power of attorney automatically ceases to be in effect when the person who has made it becomes incapacitated or loses his mental capacity.
On the other hand, a durable power of attorney is one that continues to stay in effect even when the principal has become incapacitated. Hence, this type of power of attorney is used to give certain directions to the agent as to how certain financial decisions or certain directions for health care shall be taken. Hence this type of power of attorney is selected by people who would like their affairs to be taken care of exactly how they wish when they are ill and cannot make those decisions themselves.
There is a misconception sometimes that a durable power of attorney will continue to be in effect even after the principal dies. However, this is not true. It ceases to be in effect when the principal dies just like the regular power of attorney. It can survive mental incapacity but not death.
[Also Read: Nominee Agreement]
People Involved in a Durable Power of Attorney
The people involved in a durable power of attorney is the person who is making a power of attorney (usually called the ‘principal’) and the person who is appointed to carry out certain tasks (usually called the ‘agent’ or ‘attorney in fact’). The principal can appoint any person whom he trusts as an agent to take care of his affairs.
Purpose of a Durable Power of Attorney
The purpose of a durable power of attorney is to appoint an agent to carry out certain tasks on behalf of the principal that the principal is too ill to perform himself. Such a power of attorney is frequently used in the event of a principal’s illness or disability, or when the principal can’t be present to sign necessary legal documents for financial transactions. This is an easy way for a person to give someone he trusts the ability to handle his affairs. The absence of such a power of attorney may lead to expensive court cases for the appointment of a guardian.
Through this power of attorney, a principal can decide beforehand how his financial matters are to be handled or what decisions shall be taken with regard to his health care. He shall make such decisions known to the agent who shall execute them on behalf of the principal. Thus, this ensures that the principal is not dependent on his family for these important decisions and prevents any unwanted decisions being taken.
The durable power of attorney can come into effect as soon as the principal signs it or when the principal becomes incapacitated. This will depend on the language of the document and on when the principal wishes it to come into effect.
Contents of a Durable Power of Attorney
A durable power of attorney generally should contain all the important details that give the power to the agent to act on behalf of the principal.
- The name of the agent to whom the powers are delegated should be mentioned along with his address and phone number so as to avoid any confusion with regard to his identity.
- The document should mention whether the agent shall start acting on behalf of the principal immediately or when the principal becomes incapacitated.
- It should be stated that the relationship between the principal and the agent is a fiduciary one. This means that the agent shall act in the best interest of the principal.
- There should be a detailed description of the powers and acts that the agent has the power to commit.
- The document also must mention that it is durable in nature and will continue to be in effect in case the principal is incapacitated or ill.
- The date of execution of the durable power of attorney must be clearly mentioned.
Usually, two separate documents are made to take care of medical and financial matters. This is done for practical purposes more than anything else. One is a medical power of attorney that contains directions for health care if the person making it is too ill to speak for himself. The other is a financial power of attorney that contains directions for the agent to handle financial transactions on behalf of the principal.
How to Draft a Durable Power of Attorney?
The following are the steps to follow while drafting a durable power of attorney:
- The proper format must be used while drafting a power of attorney.
- Both the parties, i.e., the principal and the agent must be identified clearly with their names, addresses, and phone numbers.
- The powers that are to be delegated to the agent and the acts that can be committed by him must be mentioned in detail. Any instruction, direction, or desire of the principal must be laid down in writing.
- It must be specified that a power of attorney is a durable one and will survive the mental incapacity of the principal.
- The principal must sign a power of attorney in the presence of witnesses after carefully going through every provision in the document.
- A notice must be sent to the agent, notifying him about the principal’s desire to appoint him as the agent. The agent must carefully read the notice and the terms of a power of attorney to understand his powers and responsibilities. He then may sign it and accept his appointment as the agent.
- A power of attorney must be signed by two witnesses in the presence of each other.
- It is recommended that a power of attorney should be notarized as this will help prove the authenticity of the document.
Benefits and Drawbacks of a Durable Power of Attorney
The following are the benefits and drawbacks of having a durable power of attorney:
- Having a durable power of attorney for healthcare in place helps a person take care of certain medical decisions and financial transactions when he is incapacitated or too ill to make decisions for himself. Thus he can ensure that his wishes are fulfilled in the way that he wants.
- It is an easy and inexpensive way to give the agent the ability to handle the affairs of the principal.
- In the absence of such a power of attorney, there may be a court case to appoint a guardian for the principal, which may be an expensive affair.
- A possible drawback of a durable power of attorney could be that the agent may commit certain acts that he has no right to commit or, in extreme cases, may even commit fraud against the principal. Hence, it is important that the principal should appoint a person whom he trusts as his agent.
What Happens in Case of Violation?
There may be an instance where the agent exceeds the power given to him under the power of attorney or misuse such powers. This misconduct may include stealing or embezzlement of money, transferring any asset that belongs to the principal, or any other activity that causes a loss to the principal.
In such cases, the agent can be held liable by a court and be made to refund to the principal the entire amount lost by the misuse along with some interest. He can also be liable to pay damages to the principal for any loss that the principal may have suffered on account of the misconduct of the agent. If there is any breach of fiduciary duty(1), the principal can file a lawsuit against the agent.
There may also be criminal penalties if the agent’s conduct amounts to a crime such as fraud, money laundering, or embezzlement(2).
In conclusion, a durable power of attorney is a useful document that helps a person delegate certain tasks to an agent in matters of finances or healthcare. This helps the principal make sure that his affairs will be taken care of even if he is incapacitated and unable to make decisions for himself.
It is a very useful document through which a person can delegate certain powers to another person. This document remains in effect even when the principal is incapacitated. However, utmost care must be taken that the agent is someone whom the principal can trust and someone who will always act in the best interest of the principal. This will go a long way in protecting the interests of the principal and ensuring that his instructions and wishes are complied with.
There may be different requirements for a durable power of attorney in different states such as Oregon, Illinois, New York, Virginia, California, etc.