Of all the estate planning documents, I think the most important document is a financial power of attorney.  A financial power of attorney is often called a general durable power of attorney.

When a person signs a power of attorney document granting another person the ability to make financial decisions for him, he is called the “principal.”  The principal grants authority to his “agent” or “attorney-in-fact” to make financial decisions for him.

A “general” power of attorney is a power of attorney through which a principal grants to his agent the authority to make a wide variety of financial decisions.  On the other end of the spectrum would be a “limited” power of attorney.  A limited power of attorney is a document through which the principal grants his agent the authority to make limited decisions for him, often decisions involving one type of financial transaction.

For instance, a limited power of attorney might give the agent the authority to make bank transactions only for the principal, perhaps banking decisions at one particular bank.  When I ask a client if they have a power of attorney, many will say to me, “Yes, I signed one at the bank.”  This type of power of attorney is a limited power of attorney to conduct banking decisions only for the principal at one particular bank.  This is not a general power of attorney.

In my opinion, anyone over the age of eighteen should have a general power of attorney because a principal wants to appoint an agent who can make many types of financial decisions for the principal.  I always tell clients that you want to make the power of attorney very broad.  A typical general power of attorney that I draft is fourteen pages long.

Some clients will say to me, “This paragraph doesn’t apply to me.  I don’t have [insert some type of asset, such as stocks, bonds, annuities].”  My answer is, you don’t want to make a general power of attorney narrow.  You never know what the agent may have to do for his principal, and if the power of attorney fails to address a given financial transaction, then the agent won’t be able to make that financial decision for the principal.  In order for an agent to make a financial decision for his principal, the document must specifically address that financial transaction.

For this reason, in my opinion, it is better to draft the general power of attorney very broadly.  In this way, no matter what issue arises, the agent will be able to make the financial decision for his principal.

A “durable” power of attorney is a power of attorney that remains effective even after the principal no longer retains his mental capacity.  In order to sign a power of attorney, the principal must have his mental capacity.  If a person waits too long and no longer retains his mental capacity, then he cannot sign a general durable power of attorney.

This is why I always tell people to sign a power of attorney now.  If you wait too long, you may not be able to sign the power of attorney when you need it.  Similarly, you want the power of attorney to be durable because the agent will probably use the power of attorney when you do lack mental capacity, and if the power of attorney were not durable, your agent wouldn’t be able to use the power of attorney when you no longer retained your mental capacity.  Most powers of attorney are durable.

Another issue is whether the power of attorney is effective immediately upon signing the document or only when the principal is disabled, which is called a springing power of attorney.  Most often, I recommend that the principal make the power of attorney effective immediately.  While most principals do not want the document to be used until they are disabled, if the principal makes the power of attorney a springing document, many banks will refuse to honor the document when the agent needs to use it.