In estate planning circles people sometimes throw around terminology without explaining it thoroughly because they are so used to these terms they become second nature. Yet, the layman may or may not know what is being referred to, so we endeavor to explain some of the core terms that are commonly utilized in the parlance of estate planning from time to time. With that in mind let’s take a look at the durable power of attorney and why it is relevant to estate planning.
The fact that the population is rapidly aging is making incapacity planning all the more important. People who are at least 85 years old are the fastest growing segment of the society, and around half of people who reach this age suffer from dementia. Dementia can prevent people from making sound personal and financial decisions.
A power of attorney is a legal instrument that is used to empower someone to act in your behalf legally. There is the general power of attorney that gives your appointed attorney-in-fact sweeping authority, but there is also a limited power of attorney. For example, if you were engaged in an out-of-state real estate transaction you could execute a power of attorney that enabled your agent to sign the paperwork in your behalf for just that single purpose.
Originally a general or limited power of attorney would no longer be recognized if you became incapacitated. A durable general or limited power of attorney does remain in effect in the event of your incapacity. You can execute a durable medical power of attorney appointing someone to make health care decisions in your behalf, and a durable financial power of attorney empowering an attorney-in-fact to make financial decisions.
If you were to become incapacitated without having executed durable powers of attorney, the court may appoint a conservator to manage your affairs. Most people would prefer to make this choice themselves, and this is why these documents have become staples of the modern incapacity plan.