Trusts and Estates

Powers of Attorney: Dealing with Asset Accounts

A power of attorney is a document stating that a person has designated another person as his or her agent. Often the goal is for the agent to be able to access asset accounts such as bank accounts, 401 or IRA accounts or other assets. The most popular form of a power of attorney is the durable power of attorney for property management. Use of a durable power of attorney will avoid the costs of a guardianship or conservatorship proceeding. Additionally, the principal is free to select his or her own agent, rather than relying on the judgment of a court in order for the person's assets to be made available for use.

Requirements of a Power of Attorney

To be valid, the person executing the power of attorney must have capacity to contract, which simply means the capacity to understand the nature and significance of the act of signing the document. The people are best defined as the principal or the person giving a power of attorney, and an agent, the person who will act on behalf of the principal. All states have enacted durable power of attorney statutes. With the proper language, the power of attorney remains valid even after the incapacity of the principal. That having been said, there are two basic types: a continuing durable power of attorney, which continues after the principal's incapacity, and a springing durable power of attorney, which does not begin or "spring" until the incapacity of the principal.

What a Power of Attorney Does Not Do

Remember, the creation of a durable power of attorney alone will not allow the principal to avoid probate. To avoid probate, the principal must transfer his or her assets into a revocable trust, joint tenancy or some other non-probate device.

How to Prepare

It will be important to have a record of all of the principal's assets so that they may be used for his or her support during their lifetime. Be sure to contact the principal's financial institutions for their approval and be aware that it may take some time for them to recognize and accept the power of attorney.

Things to Consider When Creating a Power of Attorney

  • Remember the financial institution's perspective. Allow sufficient time for the financial institution to review the document. Advise the client that the agent may not have immediate access to the accounts.
  • Draft both comprehensive and specific language in the document. The document should be specific enough to grant the agent the necessary authority but backstopped with broad general language that makes clear the customer's intent in creating the power.
  • When creating a springing power of attorney, specify the procedure for determining incapacity. The procedure must be sufficiently clear so that the financial institution can rely on it without question.
  • Execute multiple originals. A financial institution may insist on keeping an original on file and merely providing in the document that third parties may rely on facsimiles may not be sufficient.
  • Periodically update the power of attorney. Rejection is less likely if the principal has recently certified the continued validity of the power.
  • Consider using the financial institution's form. The principal may want to execute the institution's own form in addition, not as a substitute, assuming that the principal still has capacity.
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