Financial Powers of Attorney
A financial Power of Attorney (POA) is a legal document in which one person (called the "Principal") grants authority to another person (called the "Agent") to carry out some, or all, of the transactions that the Principal is legally authorized to do. There are many reasons for granting authority to an Agent under a Financial Power of Attorney, but generally, such authority is intended to be used by the Agent only when the Principal is mentally incapacitated.
What is a "Durable" Power of Attorney
When a POA is described as “Durable” it means simply that the authority granted to the Agent in the document continues to be effective during a period of incapacity of the Principal. Obviously, if the purpose of granting powers to an Agent is to allow the Agent to manage assets for an incapacitated Principal, then the POA must be "Durable." All that is required is a sentence somewhere in the document that says "the authority granted to my Agent shall continue to be effective during any period of incapacity of the Principal."
What is a "Springing" Power of Attorney
When a POA is described as “Springing” it means that the authority granted to the Agent in the document does not become effective until the Principal is deemed to be incapacitated. I've never recommended springing POAs for the reason that the custodian of the assets may require the Agent to prove that the Principal is incapacitated--potentially causing delay and additional cost. What's more, I've never seen a Springing POA that actually defines "incapacity," which could cause a custodian to refuse to allow the Agent to act.
Should You Rely on a Power of Attorney?
The alternative to relying on a Power of Attorney is a Revocable Trust. When assets are titled under the name of a Revocable Trust, the successor trustees have authority to manage the assets in the event of incapacity of the trustmaker--and the definition of incapacity is contained in the terms of the trust. Typically, what is required is the certification of one or two physicians that the trustmaker is not capable of handling his/her financial affairs. Although a POA is an important component of a good estate plan, a fully funded Revocable Trust is a better planning solution.
The NC Legislature passed a new Uniform Power of Attorney Act which became effective on January 1, 2018. The new law greatly expands the powers of an agent to act on the behalf of the person creating the POA. Click on this PDF to review an article explaining the new law: