A comprehensive estate plan includes more than just a Will. You need a broad set of legal documents and organizational approaches in order to cover all of the necessary bases. A lot of estate planning is about management and control of your assets, and not just at your death. A Will doesn’t do anything until you die, and even then it doesn’t control all of your assets. Among the tools every estate plan needs is a broad general durable Power of Attorney. This document gives someone the power to manage many of your assets, pay your bills, and deal with legal and tax matters on your behalf.
In my experience too many people — even too many lawyers — treat Powers of Attorney as standard forms, giving everyone pretty much the same document. One the one hand, a basic form Power of Attorney is usually (but not always) better than no Power of Attorney at all, but on the other, specific plan goals and needs are rarely met with a standard form. The Chapel Hill and Durham area estate planning attorneys at Clarity Legal Group® help clients nearly every day with Powers of Attorney. This blog shares a few basics of Powers of Attorney to help you begin to think about how a Power of Attorney can help you.
Power of Attorney Basics
A power of attorney, or POA, is a legal document that allows you (referred to as the “principal”) to grant another person (the “Agent”) the legal authority to act on your behalf. The type and extent of the legal authority you grant to an Agent depends on your needs, your goals, and ultimately the type of POA you execute.
A general POA grants your Agent almost unlimited power to act on your behalf. This means that your Agent may be able to do things such as withdraw funds from your financial accounts, sell property and assets owned by you, and even enter into contracts in your name while the POA is in effect. Because of the broad authority you grant to an Agent when you execute a general POA it is imperative that you think long and hard before doing so.
A limited POA only grants to your Agent the limited, and specific, authority enumerated in the POA. For example, my wife once had a minor automobile accident out-of-state in a car titled only in my name. I executed and sent her a POA which gave her unlimited authority to deal with that specific car as to insurance matters. Another example which is common is giving someone (often a spouse) the specific power of attorney to act on your behalf at the closing on the sale or purchase of your home because you will be out of the country at the time.
What Does It Mean If a Power of Attorney Is Made “Durable”?
Historically, a power of attorney automatically terminated upon the death or incapacity of the Principal. The problem with that was that for many people, the entire point of executing a POA was that they wanted a loved one to have the authority to act for them in the event of their incapacity. If, however, the POA automatically terminates upon the incapacity of the Principal, executing the POA will not fulfill that purpose. With that in mind, the concept of a durable power of attorney began to evolve. A “durable” POA is simply a power of attorney that survives the incapacity of the Principal. If you are considering making a POA durable, as yourself the following questions first: “Do I want the Agent named in my power of attorney to be able to control my finances and/or make decisions on my behalf if I am incapacitated?”
North Carolina Law
It is important to understand the limitation of a durable POA as well though. State laws govern things such as whether a POA must conform to a specific format, whether it must be registered, when and how a POA terminates, and what limitations there are to an Agent’s power under a POA. Only two years ago, the state of North Carolina adopted a version of the Uniform Power of Attorney Act. There are several key changes impacting Powers of Attorney in North Carolina under this law, most of them pretty helpful. Some relevant highlights to the new law include:
- Under the new law, Powers of Attorney created after January 1, 2018, are automatically deemed to be durable Powers of Attorney unless they declare that they are not. This is, I think, a helpful change, particularly for do it yourself POAs created by people trying to do this with a standard form.
- Under the old law, a Durable Power of Attorney was required to be filed in the Register of Deeds office in order to be effective upon the incapacity of the Principal. Unfortunately, many attorneys routinely filed the Powers of Attorney, even before the incapacity. Once a Power of Attorney is filed, it becomes more complicated to revoke or Agency or replace one Power of Attorney document with another. For this reason, I think Powers of Attorney should not be filed until filing is needed.
- Under the new law, filing is no longer required in the even of the incapacity of the Principal except in the case of real estate transactions. It is a separate question whether a particular third party, for example a financial institution, might require that Power of Attorney be filed before honoring it. Many do, and whether this is habit because it was required for so long and they have not adjusted to the new law, or whether it will continue to apply is unclear. My guess is many if not most financial institutions will continue to ask for “certified” or filed POAs.
- Even if you execute a general POA, your Agent does not have unlimited authority. Certain powers, such as those related to making gifts, changing beneficiary designations, and delegating authority, must be explicitly stated within the document. Third parties, again such as financial institutions, often take this concept much farther, requiring specific transaction to be described in the Power of Attorney. I once presented a Power of Attorney (not drafted by us) to a financial institution for the purposes of a securing a real estate loan for the Principal. The POA stated that it empowered the Agent to engage in any and all real estate transactions, to borrow money and pledge assets as collateral, but offered no more specifics. The financial institution found the POA not specific enough for the transaction we were doing.
This review does not cover all of the important changes under the new law. Some relate to the treatment in North Carolina of Powers of Attorney created outside of North Carolina. It is our judgment that if you have a Power of Attorney created in another state and have moved to North Carolina you should review your entire estate plan and likely update to a Power of Attorney created under North Carolina law. The Chapel Hill Durham area Estate Planning Attorneys at Clarity Legal Group® will not only prepare this document for you, but ensure that it is defined to meet your goals.
Contact a Chapel Hill Durham Area Estate Planning Attorney
If you have additional questions or concerns about how a Durable Power of Attorney might fit into your estate plan, please contact us at Clarity Legal Group® by calling us at 919-484-0012 or contact us online.