Not all durable power of attorney forms are created equal. First, let’s clarify what a durable power of attorney form (DPOA) is, and what it does for you.
A DPOA form allows you to designate a trusted person, often your spouse or adult child, to make financial decisions for you if you are alive but incapacitated (legally). This means that someone else can keep your financial affairs in order while you are unable to do so yourself. This is a formal, notarized legal document.
Usually the form is required to access your assets. If you are in a coma, for example, and someone needs to make a withdrawal from the bank to pay for your care, will the bank just hand your money over to anyone who walks in and says they want your money? I hope not. So how does someone access your assets if you are unable to do it personally? They do it with a durable power of attorney.
A DPOA can allow your designated person, called your “agent”, to carry out just about any transaction you could do if you were not incapacitated – if the proper form is executed and contains the proper provisions.
You may wish to grant your agent very broad powers so they can deal with just about any situation that comes your way. But with these broad powers comes risk, risk that your agent will not carry out your wishes properly and/or risk that they will not act in your best interest, i.e. theft, misappropriation, etc. You have to evaluate the powers conferred as they relate to the level of trust you have with your agent. Arguably, if your spouse is your agent you’ll want to grant them the most powers available by law. If your agent is your friend then perhaps you’ll want to restrict these powers.
Many people will do some internet research and find what is called a “Uniform Statutory Form Power of Attorney” which is controlled by California Probate Code Section 4401. This form will be appropriate for many, but not all people. Most financial institutions recognize and accept this form, including the Internal Revenue Service. But this form has limits that most people do not recognize.
First, the basic statutory form grants your agent powers immediately and not only upon your incapacity. This, in my opinion, is ill advised in most situations. This means that your agent can walk down to the bank with this form and withdraw all your money even while you’re still competent. Most people do not realize this and would not want to grant someone this sort of power immediately.
Second, California Probate Code Section 4264 requires that certain powers be expressly granted in addition to the statutory wording. These include creating or terminating a trust, funding a trust with property, making or revoking a gift, disclaiming certain gifts to be received, changing survivorship interests in property and changing beneficiaries on a custodial type account (i.e. IRA or 401(k)).
These powers can be essential if you are looking to create a trust for disability (Medi-Cal) planning or any other reason, change an IRA beneficiary for your spouse because your children no longer deserve to receive the money or disclaim an inheritance on behalf of an incapacitated principal.
Before you start creating or modifying a durable power of attorney form, consult an attorney familiar with estate planning matters so that they can counsel you on the risks and rewards of each provision.