The Power of the Power of Attorney
Related Practice: Estate Planning & AdministrationAlthough the term “estate planning” is often associated with planning for the distribution of assets at death through a Will or Revocable Living Trust, a comprehensive estate plan involves planning for life as well. In many situations, a General Durable Power of Attorney may be a more important part of the estate plan than a Will or Revocable Living Trust.
While Washington law allows specified individuals to provide informed consent for health care on behalf of another even in the absence of advance planning, there is no equivalent provision with respect to financial decisions: if a person is incapacitated or otherwise unable to manage their own affairs, court involvement will likely be needed.
Without advance planning such as a Power of Attorney, a conservatorship (formerly “guardianship of the estate”) may be necessary. A conservatorship is a court procedure in which the court appoints a person or professional fiduciary (known as the “conservator”) to manage the financial affairs of another. In a conservatorship proceeding, a court can limit or eliminate the ability of the person subject to the conservatorship to handle his or her own affairs independently. The process of appointing a conservator can take months, and the individual subject to the conservatorship often bears the fees and costs associated with establishing the conservatorship. In addition, conservators are required to report to the court on a periodic basis regarding the financial status of the person subject to the conservatorship, potentially requiring disclosure of sensitive financial information.
Before appointing a conservator, the court must consider whether there are any less restrictive alternatives that can adequately protect the person alleged to be incapable of managing his or her own affairs. A Power of Attorney designates one or more individuals or professionals (“Agent(s)”), either in succession or serving concurrently, to make financial decisions on behalf of the person executing the Power of Attorney (the “Principal”). Importantly, a Power of Attorney does not eliminate the Principal’s ability to continue managing his or her own financial affairs, rather, it can provide for supplemental or substitute decision-making. Nor does an Agent need to petition a Court to act. Once the Agent’s authority is activated under the terms of the Power of Attorney itself, the Agent can begin acting on the Principal’s behalf immediately, which can be crucial in time-sensitive situations. Powers of Attorney can be drafted to become effective immediately or when the Principal’s primary care physician determines that he or she is incapable of managing his or her affairs (“effective upon incapacity”).
As with all elements of a comprehensive estate plan, each Power of Attorney should be tailored to the individual client’s needs, wishes, and goals. There are certain powers granted to all Agents under state law, but these powers can be restricted or expanded within the Power of Attorney itself. For example, a Power of Attorney can grant the Agent power to make taxable gifts to reduce or avoid estate taxes, the power to continue any business the Principal may be involved with, or to make or change beneficiary designations, each of which are not granted to the Agent by default state law. Building in flexibility for an Agent to act broadly on behalf of the Principal can save not only the time and expense of a conservatorship, but can provide continuity and a smooth transition of decision-making in the event of incapacity.
A Power of Attorney is in integral part of an effective and comprehensive estate plan, and should be discussed with an experienced estate planning attorney. To learn more, please contact a member of the Stokes Lawrence Estate Planning Group at (206) 626-6000 in Seattle or (509) 853-3000 in Yakima.