Ask the Experts!
The professionals at Advanced Underwriting Consultants (AUC) answer the tax and technical questions posed by producers. Here’s the question of the day.
Question: What’s the difference between a durable financial Power of Attorney (POA) and a springing POA?
Answer: A durable financial POA is a document under which the person creating the document (the principal) gives someone else (the agent) the power to act on the principal’s behalf with regard to financial matters.
A durable POA generally give the agent the immediate right to act on the principal’s behalf—without any need for a triggering event. Further, the authority to act generally persists even if the principal later becomes incapacitated.
One of the purposes of a durable POA is to relieve the family of an incapacitated principal from having to seek a custodianship from the court to be able to handle the disabled person’s financial affairs.
Some principals are reluctant to give the named agent so much authority over the agent’s financial affairs while they are healthy. To address that concern, sometimes a springing financial POA is created. Such a document requires the agent to prove that a triggering event has happened before the agent can act on behalf of the principal. The triggering event might be something like the principal’s doctor certifying that the principal is incapacitated.
So why doesn’t everyone choose a springing POA instead of a durable POA? The answer is that it can be a challenge for the agent to get the evidence needed to trigger the POA at the critical time. For example, if a principal becomes incapacitated suddenly, get a doctor’s attention and convincing him or her to write a certification letter may be challenging. Since a durable POA does not require such efforts, it’s easier for the agent to act in emergencies.
Powers of attorney can be written to give an agent broad powers to act with respect to a variety of financial matters, or they can be written to be limited in scope—sometimes covering just a single transaction. Most estate planning attorneys draft POAs to cover a broad range of financial transactions.
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