It seems that most people realize the importance of having a will and if they don’t have a will they at least realize that they should have one. Unfortunately, it seems that many people are not even aware of another very important document that they should have: a durable power of attorney. They don’t know what a durable power of attorney will do for them and the significant problems and expenses that can result if they don’t have one.
What is a durable power of attorney?
A durable power of attorney is a document which you sign that gives someone else the authority to act on your behalf to manage your financial and business affairs. It is much different from a will. A will is a document which takes effect when you die and directs what will happen to your probate assets. In contrast, a durable power of attorney is used by your designated “attorney-in-fact” when you are alive and expires upon your death. Your attorney-in-fact does not have to be an actually attorney but can be any adult you know. Typically it is a spouse or an adult child but can be a sibling or just a friend. It is important that you be very careful about who you designate as your attorney-in-fact because that person has the power to make financial decisions for you. The person who holds a power of attorney can use the document to sign deeds to real property (the original power of attorney must be available to record at the registry of deeds), pay bills, deposit checks, close bank accounts, make decisions regarding investment accounts, sell a business you may own, etc. Essentially the durable power of attorney gives your attorney-in-fact the ability to manage your financial affairs just like they were you.
Why is it so important?
The easiest way to explain why a durable power of attorney is important is with an example. Let’s say that you and your spouse own your home as husband and wife as tenants by the entirety. What this means is that if either of you were to die, the survivor will automatically own 100% of the house by operation of law. To sell the house you will just need to sign the deed and record a copy of your spouse’s death certificate.
But what happens if you want to sell that house and your spouse is alive but incapacitated? You have listed the house for sale, moved all of your items to Florida and one week before the closing your spouse has a stroke which leaves them incapacitated. Your spouse’s name is on the deed and to transfer the house, if they are alive, he or she must sign the deed. Unfortunately, their medical condition has left them unable to communicate or sign any document. If your spouse has named you as their attorney-in-fact, and you have the original power of attorney in your possession, the sale of the home can proceed and the closing should take place as scheduled.
If your spouse did not prepare a power of attorney then you would be forced to go to the Probate Court to request to be appointed a conservator of your spouse so that you can manage their financial affairs. While it is almost certain the Probate Court would approve you as the conservator, the process will take time. It will also be expensive even if you file the paperwork yourself (i.e. you did not hire an attorney to help you) to be appointed the conservator. The filing fee to be appointed conservator is $265.00. Once you are appointed the conservator, you then must petition the probate court for a license to sell the property. The Probate Court charges a fee for the license to sell which is based upon the selling price of the property and can be up to $1000.00. The Probate Court is likely to appoint an attorney to investigate the sale to make sure the interests of the incapacitated person are protected. Even if you don’t hire your own attorney to help you with the process, you will be required to pay for the attorney who has been appointed by the Probate Court to represent the interests of the incapacitated person. This whole process will be expensive and will take time. If you are in a situation where you have to have a conservator appointed and a license to sell approved by the Probate Court, it is unlikely that the sale would be able to occur on the planned closing date. Importantly, all of this could have been avoided if your spouse had named you as their “attorney-in-fact” with a properly executed power of attorney.
What to do now?
There is an old expression that the real problem is “you don’t know what you don’t know.” The benefit of meeting with an experienced estate planning attorney is that you can discuss your situation and determine what is in your best interests. If you would like to discuss your particular situation with me, please call 781-934-8200 to schedule an initial no cost consultation.