Understanding the Scope of a Durable Financial Power of Attorney
Planning for the future involves making important decisions about how your affairs will be managed if you're unable to handle them yourself. A Durable Financial Power of Attorney is a cornerstone of this planning, but many people are unsure of what it entails. Seeking guidance from a qualified lawyer is a practical step to protect your financial interests and provide clear instructions for your loved ones.
The Elder & Disability Law Firm, APC assists individuals and families with these significant life-planning documents and provides personalized legal solutions to meet their unique needs. Their attorney, Esther C. Wang, also helps with estate planning, Medi-Cal planning, and elder law matters. With years of experience, the firm serves Southern California communities, including Redlands, Riverside, Rancho Cucamonga, and Palm Springs.
A Durable Financial Power of Attorney (DFPOA) allows you to appoint someone you trust—known as an "agent" or "attorney-in-fact"—to manage your financial and property matters on your behalf. The "durable" part of the title means the document remains in effect even if you become incapacitated, which is a primary reason people create one.
Without this provision, a standard power of attorney would automatically terminate upon your incapacitation, leaving your family to petition the court for a conservatorship, which can be a lengthy and costly process.
The Role and Responsibilities of an Agent
Choosing an agent is one of the most significant decisions you will make when creating a DFPOA. This person will have broad authority over your assets, so they must be someone you trust implicitly. The agent has a fiduciary duty to act in your best interest, meaning they must manage your finances responsibly, keep meticulous records, and avoid any conflicts of interest.
The responsibilities of an agent can be extensive and may include:
Managing bank accounts: Paying bills, making deposits, and handling other banking transactions.
Handling real estate: Buying, selling, or managing property on your behalf.
Investing: Making decisions about your stocks, bonds, and other investments.
Operating a business: Continuing the operation of a small business if you own one.
Filing taxes: Preparing and filing your state and federal tax returns.
Applying for benefits: Handling applications for government benefits like Social Security or Medicare.
Your DFPOA document will specify the exact powers you grant to your agent. You can make these powers as broad or as limited as you wish. For example, you might authorize your agent to handle all financial matters, or you could restrict their authority to specific tasks, such as only paying your monthly bills.
When Does a Durable Financial Power of Attorney Take Effect?
A DFPOA can be designed to become effective under different circumstances, depending on your preferences. There are generally two options:
Effective immediately: The document can become effective as soon as you sign it. This means your chosen agent can begin acting on your behalf right away, even while you are still capable of managing your own affairs. This can be useful for convenience, such as having someone handle your finances while you travel.
Springing Power of Attorney: The document can be structured to "spring" into effect only upon the occurrence of a specific event, which is almost always your incapacitation. The document must clearly define what constitutes incapacitation. Typically, it requires a written determination from one or two licensed physicians stating that you are no longer able to manage your financial affairs.
While a springing power of attorney may seem safer, it can sometimes create delays. Your agent may face challenges getting the required physician letters or have financial institutions question the validity of their authority, creating hurdles at a time when they need to act quickly. Discussing these options with an attorney can help you decide which structure best suits your needs.
How a DFPOA Differs from Other Estate Planning Tools
People often confuse a DFPOA with other estate planning documents, like a will or a living trust. While they are all part of a comprehensive plan, they serve distinct purposes.
Will vs. DFPOA: A will only takes effect after your death. It dictates how your assets should be distributed and names a guardian for minor children. A DFPOA, on the other hand, is only valid during your lifetime and becomes void upon your death. It is designed to manage your affairs while you are alive but unable to do so yourself.
Living trust vs. DFPOA: A living trust is an entity you create to hold your assets. You appoint a trustee to manage them. While you are alive and well, you are typically the trustee. If you become incapacitated or pass away, a successor trustee you named takes over. A DFPOA grants authority over assets that may not be in the trust. A comprehensive estate plan often includes both a living trust and a DFPOA to cover all assets and potential scenarios.
California Laws Governing Durable Financial Powers of Attorney
In California, the laws governing these documents are outlined in the Power of Attorney Law within the Probate Code. The state provides a statutory form for a uniform power of attorney, which can simplify the creation process. However, using this standard form may not be suitable for everyone, as it may not cover specific situations or assets.
A few key aspects of California law include:
Witness and notary requirements: For a DFPOA to be legally valid in California, it must be signed by the principal (the person creating the document) and either acknowledged before a notary public or signed by at least two witnesses. The witnesses cannot be the agent or anyone in the agent's direct family line.
Agent's duties: California law is very specific about the agent's fiduciary duties. The agent must act solely in the principal's interest, keep assets separate from their own, and maintain detailed records of all transactions. Any failure to do so can result in legal liability.
Revocation: You have the right to revoke a DFPOA at any time, as long as you are of sound mind. Revocation should be done in writing, and copies of the revocation notice should be sent to your agent and any financial institutions that have a copy of the original document.
Estate Planning Attorney Serving Redlands, California
Most people worry about who will take care of things and how their wishes will be honored when they're planning for the future. The Elder & Disability Law Firm, APC provides hands-on support, guiding clients through the process of setting up a durable financial power of attorney. The firm offers sound legal guidance that clients can use to build a solid plan for their future.
Located in Redlands, California, the firm serves all of Southern California, including Riverside, Rancho Cucamonga, and Palm Springs. Call today to schedule a consultation and start planning for your future.