The financial power of attorney can be in two forms.
First, it can be a general and durable power of attorney. What that means is that the power of attorney upon execution gives immediate authority to the representative to handle the financial affairs of the person, or second, it can be a springing power of attorney, which means it “springs” into power at some point in the future when the person becomes incompetent or unable to handle their own affairs.
Most people, as long as they’re appointing the husband or the wife or a very trusted relative or friend, elect to sign a general durable power of attorney that is immediately effective. This comes with the understanding that the power will not be exercised, but it will be available if and when it’s needed, rather than worry about having to prove later on that the person has become incompetent.
There have been cases of contentious litigation over the issue of whether an older person who is suffering from dementia to some degree has lost the ability to revoke a power of attorney previously granted. There’s something to be said for making a durable power of attorney that is immediately effective and binding. It could help to avoid a future mess.
The financial power of attorney gives the designated representative full legal standing to actually stand in the shoes of the person who is granting the power. The financial representative can exercise all the banking powers, all the investment powers, all the estate planning powers, and every single action that the person himself or herself could do. The representative is given authority to interface with banks, financial institutions, title companies, life insurance companies, and anyone else that the person could interface with.
Q: Does the person have to be incapacitated before the durable financial power of attorney is in effect?
It depends on whether they elect to have a durable power or a springing power. Durable powers are effective upon execution, but with the understanding that the actual power will not be utilized by the designated representative, but is available without triggering a contest later on as to whether the person has become capacitated.
The springing power, on the other hand, by its own terms says it’s not effective the day you sign it and it will only become effective and legally binding if and when the person has become incapacitated.