By Christine Steinmetz, Hotline Attorney
This post is the second part of a series of blog posts. Part one can be found here.
In our last blog, we discussed what exactly a Durable Power of Attorney document is and the first four steps you can take to draft one. As we discussed previous, a Durable Power of Attorney allows you to make decisions and designate your agent BEFORE a disability occurs. Once you are incapacitated, it is too late for you to sign a valid Durable Power of Attorney.
These are the final steps that you can take before drafting a Durable Power of Attorney for Finances:
Decide when you want the Powers of the Agent to become Effective.
5- The Powers of the Agent can become effective upon Disability. A Durable Power of Attorney can be triggered to take effect at a later date, such as upon your disability. A Power of Attorney that delays effectiveness and requires a triggering event or date is called a “springing” Power of Attorney. The Durable Power of Attorney must contain language that makes it “durable” during the disability or triggering event. Many choose this option because they wish to keep control of their financial decisions unless they become incapacitated. A Durable Power of Attorney effective upon disability normally requires two licensed physicians to state in writing that you are disabled. You need to anticipate that there are situations where obtaining two written certifications from physicians may be difficult due to the Health Insurance Portability and Accountability Act of 1996, also known as HIPAA.
6- The Powers of the Agent can become Effective on Execution. You may decide to make your Power of Attorney effective immediately upon signing. This option may be chosen when you are unavailable for a “one event” transaction, such as a business transaction. This type of Power of Attorney can list the specific powers of the agent and has a date when the Power of Attorney terminates.
Others may decide to make their Durable Power of Attorney effective upon signing, but do not wish to limit it to one event or transaction. Instead, they want to allow their agent to assist them in their daily financial transactions immediately upon signing the document. People that often choose this option are either ill or disabled and find this to be an effective way to allow their agent to handle their daily financial matters, such as going to the bank or paying bills, because the principal’s health has made it difficult for them to handle these tasks. A word of caution, if you choose to make your Power of Attorney effective upon signing, make sure your agent is trustworthy and has your full confidence because the agent can enter into financial transactions that will bind you as the principal.
I hope that after reading this you see that a Durable Power of Attorney can be an effective estate planning tool, and can also be an alternative to a judicial guardianship and conservatorship. However, in Michigan, no entity is required to honor your Durable Power of Attorney for Finances. Therefore, the more suspect the document is, such as being hand-written, the less likely it will be honored.
In addition, some financial institutions and government entities may require you to complete their forms or Power of Attorney documents before dealing with an agent. I encourage you to contact your financial institutions regarding their requirements.
The Social Security Administration does not recognize Durable Power of Attorney documents. Instead, it only recognizes its own form appointing a “representative payee”. A “representative payee” is responsible for managing and spending the beneficiary’s Social Security payments. To learn more about representative payees, go to www.SocialSecurity.gov/payee/index.htm or call 800-772-1213 or 800-TAX-FORM to order forms.
The IRS does recognize Durable Power of Attorney documents, but the IRS will require you to complete Form 2848 if your Durable Power of Attorney document as referenced in IRS Publication 947. For more information regarding the IRS, see IRS Publication 947 at www.irs.gov/pub/irs-pdf/p947.pdf or call 800-829-1040.
There are obstacles to Durable Power of Attorneys, however, this should not prohibit someone from having one. As with all documents, one should use caution when appointing an agent in his or her Durable Power of Attorney. You will want to choose someone you trust because they will be making your financial decisions. There are cases where agents misuse their powers and financially exploit the principal, the very person they are supposed to protect.
Finally, I recommend that you seek the assistance of an attorney when drafting a Durable Power of Attorney. If you have questions regarding Durable Power of Attorneys, please call the Legal Hotline for Michigan Seniors at Elder Law of Michigan at 1-800-347-5297.
Christine Steinmetz is a Part-time Attorney at Elder Law of Michigan, and has been a member of the Elder Law team since 2011. As an attorney at Elder Law, Christine advises clients on issues including Medicare/Medicaid, wills and trusts, estate planning, landlord/tenant, and consumer law.