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Do I Need A Durable Power of Attorney?

A durable power of attorney is a document in which the grantor, or "principal", appoints an agent, or "attorney-in-fact" to act for him or her. This empowers the agent to perform almost any act that the principal can perform regarding his or her property such as opening and closing bank accounts, drafting checks, signing contracts and executing deeds. The grant of powers can be as broad or as narrow as the grantor desires. In addition, the principal reserves the right to revoke the durable power of attorney at any time that he or she is of sufficient capacity to do so.

Why would anyone want to confer this kind of power on someone else? A durable power of attorney, if drafted properly, can give anyone the flexibility to deal with the uncertainties of life by ensuring the continuity of their affairs in the event of incapacitation. For example, events such as a medical coma, incarceration in jail or prison, and military deployment can render someone unable to manage their finances and property at home. A trusted attorney-in-fact can help carry on until the principal returns to a position (if possible) that he or she can take care of business.

A valid durable power of attorney requires all of the following:

  • Designation by the principal of another person as the principal's attorney-in-fact in a writing that contains the words "This power of attorney is not affected by the principal's subsequent disability or incapacity, or by the lapse of time", or "This power of attorney is effective upon the disability or incapacity of the principal", or similar words showing the principal's intent that the authority conferred is exercisable notwithstanding the principal's subsequent disability or incapacity or lapse of time (unless the writing states a termination date). MCL 700.5501(1).
  • Signed voluntarily by the grantor OR signed by a notary public on the principal's behalf. MCL 700.5501(2).

The attorney-in-fact has all of the following rights, responsibilities, duties and limitations under the law:

  • "Except as provided in the durable power of attorney, the attorney-in-fact shall act in accordance with the standards of care applicable to fiduciaries exercising powers under a durable power of attorney." MCL 700.5501(3)(a). As a fiduciary, the attorney-in-fact must always act in the best interest of the principal and observe the prudent investor rule.
  • "The attorney-in-fact shall take reasonable steps to follow the instructions of the principal." MCL 700.5501(3)(b).
  • "Upon request of the principal, the attorney-in-fact shall keep the principal informed of the attorney-in-fact's actions. The attorney-in-fact shall provide an accounting to the principal upon request of the principal, to a conservator or guardian appointed on behalf of the principal upon request of the guardian or conservator, or pursuant to judicial order." MCL 700.5501(3)(c).
  • "The attorney-in-fact shall not make a gift of all or any part of the principal's assets, unless provided for in the durable power of attorney or by judicial order." MCL 700.5501(3)(d). Some reasons a principal may confer the power to gift to an attorney-in-fact would be for Medicaid planning or minimizing the consequences of federal estate tax.
  • "Unless provided in the durable power of attorney or by judicial order, the attorney-in-fact, while acting as attorney-in-fact, shall not create an account or other asset in joint tenancy between the principal and the attorney-in-fact." MCL 700.5501(3)(e). When assets are commingled, the opportunities for conversion and abuse increase greatly.
  • "The attorney-in-fact shall maintain records of the attorney-in-fact's actions on behalf of the principal, including transactions, receipts, disbursements, and investments." MCL 700.5501(3)(f).
  • "The attorney-in-fact may be liable for any damage or loss to the principal, and may be subject to any other available remedy, for breach of fiduciary duty owed to the principal. In the durable power of attorney, the principal may exonerate the attorney-in-fact of any liability to the principal for breach of fiduciary duty except for actions committed by the attorney-in-fact in bad faith or with reckless indifference. An exoneration clause is not enforceable if inserted as the result of an abuse by the attorney-in-fact of a fiduciary or confidential relationship to the principal." MCL 700.5501(3)(g).
  • "The attorney-in-fact may receive reasonable compensation for the attorney-in-fact's services if provided for in the durable power of attorney." MCL 700.5501(3)(h). If there is not a set amount of compensation provided, then the reasonableness will be determined based on the quality of services rendered and the size of the estate.

Before exercising any authority, the attorney-in-fact must execute a written acknowledgment accepting all of the responsibilities contained in law. MCL 700.5501(4). An attorney-in-fact cannot execute a will or make medical decisions for the principal, although the power to make medical decisions can be conferred by way of a patient advocate designation.

A durable power of attorney can come to life in one of two ways. First, it can be effective upon execution, meaning that the attorney-in-fact has the power to act immediately upon signing an acknowledgment. Second, it can be a springing power of attorney, meaning that it becomes effective only upon the occurrence of an event of disability. Very often, springing power of attorneys contain language that the disability of the principal has to be verified by the written opinion of a medical or mental health professional. Whether a durable power of attorney should be springing or effective upon execution depends on the desires of the principal, the trust placed in the proposed attorney-in-fact, and the overall circumstances.

In the absence of a durable power of attorney, friends and family members may have to make an application for a guardianship or a conservatorship at a Michigan probate court due to a loved one's incapacity. This can lead to unintended consequences for the person affected. First, the judge may appoint someone to handle affairs that is undesirable to the ward. Second, the affairs and assets of the ward will be public record available for anyone to view. Finally, the ward will not have the power to unilateral revoke this authority without the permission of the judge.

A durable power of attorney can be a valuable addition to your estate planning to ensure that your wishes are carried out. If you have questions about durable powers of attorney or any other aspect of estate planning, do not hesitate to contact the attorneys at Kershaw, Vititoe & Jedinak PLC for assistance today.

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