A power of attorney (POA) is sometimes said to be the most important document in an estate plan. This is mainly because there aren’t really any workarounds when it comes to needing one. In a nutshell, a power of attorney is a legal document that designates the person you would like to serve as your agent to be able to make decisions on your behalf. There are a few different types of POAs that can be applied in a variety of different ways.
One type of POA, that you should know about, is what is called a standing power of attorney. This document becomes effective when you sign it. In other words, your designated agent is granted the powers listed in the document the moment you sign it. Standing powers of attorney are often created for spouses so that the other spouse can manage finances with no roadblocks.
Married couples commonly create what is called a General Durable Power of Attorney (GDPOA). The word “general” refers to granting your specified agent the power to act generally on your behalf in financial matters. The word “durable” means that the document is to work even if you were in an incapacitated state. Therefore your designated POA could manage financial matters for you if you were unconscious, impaired, or incapacitated.
Let’s say that you may want to have a POA set up, but don’t necessarily want to give someone power right now. You may have a POA prepared to go into effect if you were to become incapacitated. This type of document is known as a springing power of attorney. With a springing power of attorney your listed agent does not have the power to act on your behalf financially until you say so, or if you become incapacitated. In other words, it “springs to life” at a later time, other than when you sign it.
A power of attorney can become effective either when you sign it, or when it springs to life, but when does a POA cease to be effective? There are 3 ways a power of attorney can no longer be effective.
The first is if it is revoked. Anyone who creates a POA can also revoke it at any time.
The second way a POA becomes ineffective is if the creator passes away. It is a common misconception that a POA can be used after someone has passed away. However, this is false. A designated agent cannot represent you or manage things on your behalf if you are deceased. Therefore a POA is no longer effective after you have passed away.
The third way that a POA ceases to be effective, is if you place a time limit on it. You may create a POA in such a way that it grants powers for a set amount of time, and then self terminates. This is common in instances of going on a long trip and allowing someone to act as your agent while you are gone if need be.
However, a POA will go “stale” after a period of time. There is substantial liability associated with financial institutions accepting a power of attorney. Therefore it is seen as a suggestion. For example, if your designated agent is trying to use the document to act financially on your behalf, a financial institution may be skeptical of how relevant the document is if it is too old. This is because life changes, and if the document is several years old, it may be likely that it no longer represents your current intentions. The financial institution may then reject the ability of your agent to act. It is therefore important to keep your POA fresh and to make the “suggestion” strong.
To make a POA a strong suggestion, it is necessary to spell out every specific power that you want your agent to have. Even with a GDPOA, your document needs to comprehensively list the powers that you want your agent to have. Otherwise, it is likely that the financial institution will not allow your agent to act in that capacity. In the state of Colorado, there are 10 powers that are required to be listed within a POA.
At Mason Law, we create POAs that have the 10 required powers in Colorado and many more. We work with our clients to ensure that their documents are fresh and effective. Because when it comes to needing to use a power of attorney, there aren’t really any alternatives if one is not in place. If you need a power of attorney or have questions about this document, please give us a call at 719-428-4495.