Is a Springing Financial POA right for You? By Austin Estate Planning Attorney Zachary D Kamykowski

Consider the unexpected

Estate planning is about more than preparing for the inevitable. A good estate plan should also consider the unexpected. Your plan may have detailed instructions for what happens when you are no longer around, but what if something goes wrong while alive? As an estate planning attorney in Austin, clients ask me whether a Springing Financial POA (Powers of Attorney) is right for them.

If you can no longer manage your affairs, you will need somebody to act on your behalf and in your best interest. A financial power of attorney (POA) is a legal document that lets you designate a trusted person to make financial decisions for you (sign checks, open a bank account, collect your mail, etc.). The financial POA can be immediate. That means you authorize somebody else to act for you now and into the future. Or it can be springing. In that case, it becomes effective only if and when an event occurs (usually when you become incapacitated or unable to make decisions for yourself).

While every estate plan should feature a financial POA, a springing financial POA requires a little more nuance to overcome its limitations. Additionally, a springing financial POA can pose problems that may not be easily resolved even when carefully written. That said, some people dislike the idea of making a financial POA effective immediately. They prefer to have a financial POA kick in only when necessary.

How a Springing Financial POA Works

A springing financial POA is conditional. It springs into action when you become incapacitated. This is different from an immediate financial power of attorney, which is not conditional. An immediate financial power of attorney is like an active permission slip. It gives another person broad legal authority to take over your responsibilities the moment you sign it. By contrast, after you sign a springing financial power of attorney, it remains inactive until needed.

Defining Incapacity

When, exactly, is a springing financial POA needed? Generally speaking, it is required when you become incapacitated. Incapacity can mean many things, including mental illness, mental deficiency, physical illness or disability, advanced age, drug abuse, or unusual events such as being kidnapped or disappearing.

The springing financial POA takes effect when a predesignated person or persons determine your medical incapacity. The financial POA will usually define incapacity. Your doctor—or depending on how you set it up, your doctor and a second physician (or perhaps a combined panel of doctors and family members) —must then examine or assess you to confirm that you meet that definition of incapacity.

What Happens When a Springing Financial POA Kicks In

After a financial POA springs, the person you have nominated to handle your affairs—known as the attorney-in-fact or agent—is now allowed to do what you would have otherwise done had you not become incapacitated.

Whether immediate or springing, you can give the agent wide discretionary latitude to act on your behalf with any financial POA. This can include managing your day-to-day affairs, handling your investments, filing your taxes, collecting your mail, and operating your business. But you can also set up a financial POA so that it limits the agent's power to particular activities, such as paying your monthly bills.

In addition, you can revoke a financial POA in the future when if you no longer need it. The document should specify the exact language for revocation. It might state that you have the authority to revoke the financial POA if you regain capacity or recover lost ability. Keep in mind, though, that revocation may require medical verification. Any signed financial POA revokes when you die.

Potential Issues with a Springing POA

Giving somebody else authority under a financial POA involves some risk. This is because they are typically not subject to ongoing oversight by a court or third party. The agent can abuse their powers and make decisions, not in your best interest.

Not having a POA is also risky. If you become incapacitated without a financial POA, your family may need to petition the court for a conservatorship or guardianship. This can take months and cost thousands of dollars. In the meantime, it may be impossible for anyone to manage your most important financial affairs.

A springing financial POA helps avoid issues related to incapacity without giving your agent premature access to your affairs. But, you should be aware of the following problems:

Lag in effect

• A springing financial POA does not take effect until a doctor determines your medical incapacity. This process takes time, even when no one is disputing your incapacity.

Uncertainty about capacity

• Disputes may not arise about your incapacity if you are in a coma or suffer a severely debilitating injury. But conflicts could occur if you are in a state of slow decline. And, perhaps you have good days and bad days or alternating moments of clarity and confusion. Doctors, family members, and the agent could be in disagreement or outright conflict regarding your incapacity. Family members could challenge your incapacity in court. Until a court settles the uncertainty about your incapacity, the agent has no authority to act.

financial institutions

• Banks may be nervous about granting access to a customer's account. There have been instances where they decline financial POAs. In the case of a springing financial POA, the bank may want to see the financial POA document. They may also request to see the physician's letter, and other documents to verify the financial POA's activation. Even then, they may refuse to honor the financial POA if it is more than a couple of years old. Some banks have their own forms for appointing an agent to manage your accounts with that particular bank. To avoid future trouble, you must ask your bank about their specific requirements. In addition, you may wish to consult your estate planning attorney about how a revocable living trust can serve your needs if you become incapacitated.

state laws

• Each state has specific laws about springing POAs. For example, as of 2011, Florida no longer permits springing POAs. Your POA must comply with state law and be legally enforceable in your state. If you move to another state, consider reviewing and updating your POA. You will want to ensure that it complies with that new state's laws.

a finanical poa is only one piece of the puzzle

A financial power of attorney is one of the essential estate planning documents you can have. If you have concerns that an immediate POA is overreaching, a springing power of attorney may be a good alternative. For further peace of mind, your attorney can walk you through the other estate planning documents. These can include a medical power of attorney, an advance healthcare directive, and revocable living trust. You want to ensure you have chosen the right people to manage your affairs while you are alive but unable to care for yourself. For help with your estate plan, don't hesitate to contact our office.