By: James R. Stein, Guest Contributor
When you consult a lawyer to plan your estate, one important topic is the Durable Power Of Attorney. Although sometimes considered a mere afterthought, it can in fact be even more vital than a Will itself. In many cases, a DPA can prove to be a crucial piece of the estate planning puzzle.
Unlike a Will, a DPA works during your lifetime. It appoints someone you choose to handle your financial affairs in your stead, either for convenience or out of necessity in the event you can no longer do so yourself.
Incidentally, “attorney” does not mean lawyer. It simply means representative or agent. A lawyer is an attorney-at-law. Any competent individual of age 18 or more may serve as an attorney-in-fact.
Historically, a power of attorney was automatically revoked if the principal (i.e., the person making the DPA) became incapacitated. Fortunately, the law now permits durable powers of attorney. The term “durable” means that it becomes or remains effective, or endures, in the event of disability or incapacity. After all, this is when it is typically needed the most.
There are generally two types of DPAs. The first takes effect when signed and remains in effect if you should become disabled or incapacitated. The second only becomes effective if and when you are deemed to be in such a condition. Until then, it cannot be legally exercised. The first type is often referred to as “presently effective.” The second is known as a “springing” DPA, because it springs into effect upon proof of your disability or incapacity. Which type is appropriate for you is a personal matter, and you should discuss the pros and cons of each one with your lawyer.
It is important that a DPA be customized to your needs. Your lawyer can and should tailor the scope of a DPA to meet your situation, including anticipated potential future needs. This is not the time to download a standard form from the Internet. For one thing, Missouri law mandates certain language that must be included, in substance, to make a DPA truly durable. Moreover, some powers that can be vital in certain cases, such as the ability to make gifts or change estate planning or beneficiary arrangements, can be disastrous in other circumstances.
Choose your attorney(s)-in-fact with great care. It is an unfortunate fact that DPAs are sometimes abused, with tragic consequences for a too-trusting principal.
Note that the person making a DPA must be the person on whose behalf the attorney-in-fact is to act (the principal), and not the attorney-in-fact himself or herself. Sadly, lawyers are often called by a spouse or adult child to prepare a DPA after the intended principal is already legally unable to sign one. In such cases, a DPA is no longer an option. A probate guardianship and/or conservatorship may then be the only avenue available. Not only does this mean a costly and ongoing court process, but there are other drawbacks as well. Acts that could have been authorized under a properly drafted DPA may be unavailable, because they would require approval by the local probate court. Some courts will simply not allow certain actions in a probate conservatorship. For example, the opportunity to qualify the principal for Medicaid (known as “MO HealthNet” in Missouri) through a properly planned gifting program and/or purchase of a qualified annuity may simply be lost.
Finally, please note that Missouri also permits a durable power of attorney for health care decisions. This is a separate document, authorized under a different section of the law. It is beyond the scope of this article, but it is another subject that should be discussed with your lawyer. It can prove invaluable in the event of a catastrophic medical event or condition, and its potential for possibly sparing your family from agonizing doubts and disputes cannot be overstated.
James R. Stein is a pre-imminent estate planning, elder law and probate attorney. InNovare Law, LC relies on Jim as our “go to” counsel for special needs trusts, probate and ever challenging medicaid issues. Here is the link to Jim’s website: https://www.attorneyatlawstpeters.com/