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A detailed look at powers of attorney - what they are, what you need to know about them before you decide to create one.
POWERS OF ATTORNEY AND THEIR PLACE IN YOUR ESTATE PLAN A Detailed Look at Powers of Attorney, What They Are, What You Need To Know About Them Before You Decide to Create One GEOFFREY GARRETT Washington Estate Planning Attorney A good estate plan includes a handful of essential tools and documents. Whether you are a young person creating your first estate plan, an unmarried couple, or someone close to retirement, incorporating a power of attorney into your comprehensive plan is always a good idea. In fact, most estate plans use two powers of attorney, and in some situations, you might have even more than that. But the term “power of attorney” is not one that most people know a lot about. Like other legal concepts, a power of attorney has a specific purpose and meaning. Your estate planning lawyer will be able to explain in more detail what powers of attorney are and why they are important, but here is what you need to know about them before you decide to create one. YOUR ATTORNEY AND YOUR POWER OF ATTORNEY: NOT THE SAME THING The most common questions estate planning lawyers get about powers of attorney usually have something to do with the term “attorney.” Despite its name, a power of attorney has nothing to do with practicing law as a lawyer. Though you should talk to a lawyer if you want to create a power of attorney, the document itself has little to do with lawyers. A power of attorney is a legal document. Through this document you get to choose someone who will act as your representative. That representative, known as your agent or your attorney-in-fact, has the ability to do whatever you allow him or her to do. For example, you can give your attorney-in-fact the right to buy or sell real estate or enter you into contracts. You can choose anyone you wish to act as your attorney-in-fact. That person, even though you are using a power of attorney and they earn the title of attorney-in-fact, does not have to be a lawyer nor does being named as your agent allow that person to practice law. Byrd Garrett PLLC | Powers of Attorney and Their Place in Your Estate Plan 2 YOUR AGENT’S POWERS Even though powers of attorney are very flexible, most people create two main types. Financial. A financial power of attorney gives the agent specific decision-making abilities about your finances. Whether you want your bank to be able to pay your bills for you or give someone the ability to manage your business while you’re on vacation, a financial power of attorney is solely concerned with giving your agent the ability to manage your property or financial concerns. Healthcare. If you want someone to talk to your doctors, review your medical records, and make health care decisions when you can no longer do so, you need a health care power of attorney. Like financial powers of attorney, health care powers grant your agent the ability to make specific types of choices. THE END OF THE POWER An agent can act on your behalf or make decisions for you as long as you allow that person to do so. When a principal—a person who creates a power of attorney—gives an agent authority that principle can revoke that authority whenever he or she likes. For example, let’s say you create a financial power of attorney and give your brother the rights to sell your share of the family home. Several months go by and nothing happens. Not only has the home not sold, but your brother has not kept you informed about his efforts to find a buyer. If you want to obtain a new agent to sell your property interest, you can effectively fire your brother and terminate his authority as your attorney-in-fact. You are then free to find someone else to act as your agent. Powers of attorney also end when you, the principal, become incapacitated. An incapacitated person is someone who no longer has the ability to make his or her own decisions. Your agent Byrd Garrett PLLC | Powers of Attorney and Their Place in Your Estate Plan 3 can only make decisions that you are capable of making. When you become incapacitated you lose your ability to make choices. Therefore, your agent loses this power as well. But there is one key exception to the automatic termination of the agent’s authorities under your power of attorney. If you create a durable power of attorney the agent can still act even if you become incapacitated. Durable powers are very popular, for example, when you want someone to manage your affairs if you are suffering from serious illness or injury. OTHER TERMINOLOGY There are many types of power of attorney. In addition to the broader categories of financial and health care powers, there are other types of powers you can convey. General. When you convey a general power of attorney you give your agent the broadest possible decision-making abilities. These powers allow an agent to do almost anything you can do, with some minor exceptions. Limited. A limited power of attorney is the opposite of a general power because it only conveys specific rights to the agent. For example, all health care and financial powers of attorney are limited powers because they only allow the agent to make certain types of decisions. Springing. In some situations you might not want to give away any of your decision- making abilities until you are no longer able to do so, or until a certain event takes place. A springing power of attorney is one that only takes effect once specific conditions have occurred. You might use springing powers, for example, to give someone the ability to make health care decisions only after you have become incapacitated. Byrd Garrett PLLC | Powers of Attorney and Their Place in Your Estate Plan 4 COMPREHENSIVE ESTATE PLANS AND POWERS OF ATTORNEY There are many reasons why a person might want to create powers of attorney. Regardless of your specific desires, it’s always best to create these documents as a part of a broader estate plan. There are many pieces of an estate plan that involve choosing someone else to represent you or your interests. Creating these pieces, such as a power of attorney, in conjunction with other important elements is essential to ensuring that you create a plan that operates as smoothly and efficiently as possible. Byrd Garrett PLLC | Powers of Attorney and Their Place in Your Estate Plan 5 Recommended Book Co-Authored by Attorneys: Geoffrey H. Garrett and Stanley R. Byrd with Robert Armstrong and Sanford M. Fisch An estimated $41 trillion in inheritance will change hands in the next 45 years – yet 75% of families have failed to plan. The world becomes more complicated by the day, especially in the area of tax and estate planning. With the ever-changing and confusing tax laws, it is difficult for you to know what type of planning is most appropriate for your family. The goal of our new book is to provide families with more readily available information and equip them to take control over an area that is often misunderstood. The best part is that the book is written in a practical, easy to follow question and answer format instead of technical legalese. About Geoffrey Garrett Byrd Garrett PLLC 2150 N. 107th St., #501 Seattle, WA 98133-9009 Phone: (206) 363-0123 www.byrdgarrett.com Geoffrey H. Garrett purchased assets of the law practice of Stanley R. Byrd in 2008. For more than twenty-seven years previously, he pursued two challenging careers simultaneously, as an attorney in an active sole practice and a senior pilot for a major airline, where he achieved the rank of B-747 captain in the international operation. He was honored as his airline’s 2005 Captain of the Year in Seattle. He has been a frequent speaker on the subject of reorganizing troubled airlines, has written significant papers about airline code sharing and fleet restructuring in bankruptcy, and is the co-author with Stanley R. Byrd of Estate Planning Basics in Washington. Byrd Garrett PLLC | Powers of Attorney and Their Place in Your Estate Plan 6 Mr. Garrett advises in matters of estate planning and probate, trust administration, guardianship and planning for special needs, elder law and asset protection. He assists owners of small businesses with respect to entity formation, administration and compliance, purchase and sale of businesses and succession planning.
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