Durable General Power Of Attorney For Asset Management

By: Wells Marble & Hurst, PLLC
www.wellsmar.com

When the legal instrument is worded carefully, this underused
strategy can ease a number of financial planning woes.

The appointment of an attorney-in-fact under a power of attorney is a useful strategy in many financial planning situations.  It permits spouses to act for one another during absence or incapacity and, in the latter case, facilitates post-disability gifting and other business transactions.

A few examples of when this strategy could be used are:

Situation 1: H and W are a married couple with considerable personal and real property owned individually and jointly.  H becomes ill and is incapacitated.  Can W act for H?

Situation 2:  G is an elderly grandparent in fragile health.  G becomes incapacitated and death is imminent.  G has eight children and 22 grandchildren.  By making gifts over a two-year period, G could reduce his estate by $600,000 - saving 50%, or $300,000, without any incapacity.  Who can act for G?

Situation 3:  H is only 41 years old and is engaged in a business requiring continuing participation in various transactions.  H develops a serious mental and emotional illness which incapacitates him for months, yet the business must go on.  Who can act for H?

In the absence of an effective power of attorney, a cumbersome and expensive guardianship may be the only way to solve the problems in situations 1 and 3, but it would be of no use in the second situation.  The most likely solution to all three of the foregoing financial planning problems is a durable power of attorney.  Recognizing the possibility of disability or absence from work for an extended period, a person (called the "attorney") grants to a third party (called the "attorney-in-fact") the power to act under general circumstances (a general power of attorney) or under limited circumstances (a special power of attorney).  The power of attorney may be carefully written to remain effective after disability or incapacity of the principal, and this type of power is called "durable power of attorney".

Powers of attorney must be written and prepared by legal counsel.  Most states have adopted the Uniform Probate Code, which contains durable power-of-attorney provisions.  Some of the states which recognize durable powers of attorney by special statute include Alaska, Arizona, Arkansas, Colorado, Connecticut, Delaware, Florida, Hawaii, Idaho, Indiana, Iowa, Kentucky, Main, Maryland, Michigan, Minnesota, Montana, Nebraska, New Hampshire, New Jersey, New Mexico, New York, North Carolina, Texas, Utah, Virginia and  Washington.  The laws of other states may permit durable powers of attorney, but in any case the requirements for any particular state should be checked by an attorney.

To be a durable power, the instrument must contain language indicating that the grant and exercise of power will survive the incapacity of the principal.  The Uniform Probate Code describes the language of durability: "This power shall not be affected by the subsequent disability or incapacity of the principal."

Both the principal and the attorney-in-fact must be competent when the power is granted.  The attorney-in-fact must, of course, be competent when the power is acted upon.

In one situation, a family saved several million dollars in federal estate tax because a two-page durable power of attorney granted, among other powers, authority to purchase "flower" bonds to pay federal estate tax.  (The "flower" bonds strategy isn't what is used to be, but it is still a viable financial planning concept.)

Although the strategy of durable powers of attorney may not always be applicable, it is a valuable contingency that should be explained to all clients.

Wells Marble & Hurst, PLLC
P. O. Box 131
Jackson, MS 39205-0131
(601) 605-6900