Planning for Incapacity: Using a Durable Power of Attorney (DPOA) for Financial and Other Non-Healthcare Decisions

In our last two posts, we discussed how incapacity planning can impact one’s personal healthcare or the healthcare of a loved one. In this post, we will shift gears to focus on how incapacity planning can affect one’s financial well-being. Just as it is vital to ensure someone you trust has legal authority to make important healthcare decisions for you if you become unable to do so yourself, it is also advisable to designate someone to make decisions regarding financial matters and other non-healthcare related decisions, through the use of a durable power of attorney (DPOA).

DPOAs are commonly referred to as “financial powers of attorney,” although in most instances your attorney-in-fact is granted authority to make decisions on your behalf that are not strictly financial decisions. DPOAs can be designated as “general” or “limited.” Most of the time, however, when planning for incapacity, “general” DPOAs are established granting your attorney-in-fact full legal authority to make most all non-healthcare decisions, financial or otherwise, if you become unable to do so yourself.

One may, in certain instances, only desire to grant their attorney-in-fact authority to handle specific assets or activities. For example, POAs are often drafted to be “limited” to have authority over the closing of a particular real estate transaction. It is also possible to limit the duration of a DPOA. For example, one may grant their attorney-in-fact authority to handle their financial affairs only while they are absent during an extended trip or vacation. With the rise of online banking and bill pay, however, these short-term duration types of “limited” POAs are becoming less prevalent.

DPOAs can be either springing or non-springing. A springing power of attorney only becomes effective in the event of incapacitation, meaning it is not immediately effective when signed. One benefit to having a springing DPOA is the certainty in knowing that no one will have authority to make financial decisions without your permission so long as you are competent. One potential downside to a springing DPOA is that it only becomes effective if and when you are deemed to be incapacitated. Depending on your personal situation, such a qualifying condition can cause delay and become a hindrance for the family in the decision making process.

A non-springing DPOA, which is sometimes referred to as a vested DPOA, can be used immediately by the attorney-in-fact upon signing and endures until it is revoked or the principal dies. A non-springing DPOA takes effect without pausing for a determination of incapacity and tends to be the most convenient form. Furthermore, it takes out the requirement of making a determination of incapacity that can sometimes be a difficult diagnosis especially when dealing with issues of dementia and Alzheimer’s disease.

In order to be recognized by real estate title companies, banks and other financial institutions, a DPOA must be drafted and executed in accordance with Tennessee law and must explicitly authorize in the instrument certain actions that involve the personal free will of the principal.  Whether you are planning ahead for your next family vacation, or seeking to establish documents for health-related concerns, it is best to seek the advice of an experienced estate planning attorney regarding these decisions to ensure your incapacity and other estate planning documents accomplish your family’s needs and desires.

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