A Power of Attorney (POA) is a legal document that gives someone the ability to make financial decisions and enter into transactions on your behalf. In signing a Power of Attorney, you are considered the “Principal”, or the person granting the power. The person you designate to receive this power is considered your “Attorney-in-Fact”. This document is effective as soon as you sign it and places the Attorney-in-Fact in a position to act with the same power you have in regard to choices about your finances. These powers include but are not limited to the ability to withdraw money from an account, open or close an account, and to buy and sell possessions. The Attorney-in-Fact does not need your permission to exercise this power, but the Attorney-in-Fact does have a duty to act in your best interest.
Commonly, the Power of Attorney is considered “durable”. This indicates that it remains in effect if you become incapacitated. Intuitively, this makes sense, as the core function of a Power of Attorney is to allow someone else to make financial decisions for you when you can’t do so yourself. Mortgages, credit card bills, and taxes do not offer a grace period when you are unconscious in a hospital bed or otherwise medically unavailable. An Attorney-in-Fact can pay outstanding debts, sign checks, manage accounts/talk to banking institutions, and file your tax returns if such a situation arises. A common misconception about Power of Attorney documents is that an Attorney-in-Fact retains their power upon the death of the Principal. The power vested in a Power of Attorney is actually extinguished upon the death of the Principal.
Without a Power of Attorney, the court must select an individual to handle your financial interests through a process called a conservatorship. The court has its own standards for selecting a conservator, which may not reflect your personal feelings towards the individual’s financial prowess. The conservatorship process also comes with additional expenses that can be avoided by executing a Power of Attorney.
In Minnesota, a Power of Attorney can be created in two ways. The first is considered the Statutory Short Form Power of Attorney and the second is a Common Law Power of Attorney. The Statutory Short Form Power of Attorney is created by statute (Minn. Stat. § 523.23) and consists of a form that allows you to selectively grant certain powers to an Attorney-in-Fact. This form is often completed by checking boxes next to descriptions of certain powers to grant them to the Attorney-in-Fact. One benefit to using a Statutory Short Form Power of Attorney is that, if properly drafted, financial institutions are required by law to accept the document in all transaction indicated on the Power of Attorney. One disadvantage to this Power of Attorney is that gifting by the Attorney-in-Fact to the Attorney-in-Fact is limited annually to the Federal gifting amount, which in 2017 is $14,000 annually.
A Common Law Power of Attorney is different from the Statutory Short Form Power of Attorney in that the Common Law Power of Attorney has arisen through the court system and not through the legislative process as was the Statutory Short Form Power of Attorney. The contract between the Principal and the Attorney-in-Fact is not limited to the Statutory Short Form Power of Attorney. This Common Law Power of Attorney provides for easier asset preservation planning.
An Elder Law Attorney is a great resource to consult with when considering who to select as an Attorney-in-Fact and in deciding what powers to grant the individual.