The short answer is that you very well could need a Power of Attorney, but that it might not be enough to ensure your financial obligations are met when you need it most. Unfortunately, most people are completely unaware that the banks, brokerage firms, and other financial institutions that hold their money may not accept a Power of Attorney when you need it to go into effect! Scary isn't it?
Before we get into how this happens and how you might avoid it, here is a brief explanation of the purpose of the Power of Attorney. A Power of Attorney is generally created to ensure that your finances are handled when you become disabled (or "incapacitated" for those who love legal terms). You may have heard of a "Durable" Power of Attorney, which just means that it is a Power of Attorney that endures your disability (many older Powers of Attorney didn't work if you became disabled so they were not a very good disability planning tool).
There are also different types of Powers of Attorney that go into effect at different times, and while I won't bore you with the details, if you are interested in knowing more about how these documents might be utilized in your plans you can get the contact info for a Connecticut Estate Planning Attorney at my firm by clicking here.
So why is it that a Power of Attorney might not be accepted? Here are a few reasons:
Too Comprehensive - sometimes a Power of Attorney will be drafted to be very broad to give the agent named in the document as much power as possible to handle the finances. The problem with this is that some institutions may not be comfortable accepting Powers of Attorney they consider to be too comprehensive, and delays may result or worse yet it might not be accepted at all.
Unfortunately, drafting a very simple Power of Attorney is not the answer since the document may not be considered broad enough!
- Too Old or "Stale" - many financial institutions will not recognize a Power of Attorney that is too old for fear that the power may have been revoked/replaced without their knowledge. How old is too old? It is 100% up to that financial institution to decide, and unless you own part of the company there is probably not much you can do about it.
- Standard Power of Attorney Forms - some financial institutions have their own forms and may ignore any other Power of Attorney. The problems with this are pretty severe: the forms may change, there is no guarantee that you can ensure your finances are handled the way YOU want them to be handled in the event that you become disabled, it can be difficult to manage with more than one institution, etc.
Now please take note, I am
not trying to portray the financial institutions as the bad guys here. Most institutions have policies and procedures like this to protect both the clients and the institution. Unfortunately, there are plenty of bad people out there who try and take advantage of those persons they are close to and those bad people make these policies necessary.
So what is the solution?
One possible solution is a Revocable Living Trust. I am not saying that a Power of Attorney is useless, but rather that when it comes to disability planning, the Revocable Living Trust is the much better tool in most circumstances. Why? The biggest reason is that 3
rd parties respect the power of the trustee much more than the holder of a Power of Attorney. In fact, there are two provisions in the US Constitution that provide protection to instruments such as Living Trusts. These protections do not exist for the Power of Attorney. Furthermore, a properly drafted Revocable Living Trust will protect both you and the person you want to handle your finances if that person becomes disabled as well.
Does this mean that you should scrap your durable power of attorney...NO! But, if you feel like it would be beneficial to know more about these tools and how they might fit in your estate plan, you can reach out to a Connecticut Estate Planning Attorney by clicking here.