Durable Power of Attorney Chapter 56 Tools & Techniques of Estate Planning Copyright 2011, The National Underwriter Company1 A power of attorney is a written document that enables an individual, the “principal,” to designate another person or persons as his or her “attorney-in- fact” to act on the principal’s behalf The power can be very limited or broad What Is A Durable Power of Attorney (DPOA)?

Durable Power of Attorney Chapter 56 Tools & Techniques of Estate Planning Copyright 2011, The National Underwriter Company2 A “durable” power of attorney is a power of attorney that is not terminated by subsequent disability or incapacity of the principal if the power so states Most states have adopted statutes in conformity with the durable power of attorney provisions in the Uniform Probate Code (UPC) What Is A Durable Power of Attorney (DPOA)?

Durable Power of Attorney Chapter 56 Tools & Techniques of Estate Planning Copyright 2011, The National Underwriter Company3 When the principal is elderly and there is a significant chance the person will become senile –A well drafted durable power of attorney may negate the necessity of petitioning the local court for appointment of a guardian or conservator to handle the principal’s assets When an individual is suffering from a physical disability or illness, the effect of which could lead to a permanent or long term incapacity When Is Use Of A DPOA Appropriate?

Durable Power of Attorney Chapter 56 Tools & Techniques of Estate Planning Copyright 2011, The National Underwriter Company4 Where an individual desires to provide for continuity of the management of his or her assets in the event of a short-term or long-term physical or mental incapacity –The DPOA permits the individual, when competent, to make a determination of who will handle the individual’s affairs. As a temporary and expedient substitute for a living revocable trust When Is Use Of A DPOA Appropriate? (cont’d)

Durable Power of Attorney Chapter 56 Tools & Techniques of Estate Planning Copyright 2011, The National Underwriter Company5 As an addition to the revocable living trust, to provide flexibility To avoid the necessity of legal proceedings to establish a legal guardianship or conservatorship for an individual who may face short or long-term incapacity When Is Use Of A DPOA Appropriate? (cont’d)

Durable Power of Attorney Chapter 56 Tools & Techniques of Estate Planning Copyright 2011, The National Underwriter Company6 The principal (giving the power) must be of legal age and competent at the time the power is given The attorney-in-fact (receiving the power) must be of legal age at the time the power is exercised To be effective in the event of disability, the power of attorney must include the words: –“This power of attorney shall not be affected by subsequent disability or incapacity of the principal,” or –“This power of attorney shall become effective upon the disability or incapacity of the principal” What Are The Requirements?

Durable Power of Attorney Chapter 56 Tools & Techniques of Estate Planning Copyright 2011, The National Underwriter Company7 –Your client, a widower, is on his deathbed on December 28 –He could make annual exclusion gifts for this year and if he’s alive four days later on January 1, he could make another round of gifts, none of which will be includable in his estate for federal estate tax purposes –While mentally and physically competent to act on December 28, what if your client becomes physically or mentally incompetent and unable to make gifts on January 1, estate tax savings will be lost on the missed annual gifts How It Is Done – An Example

Durable Power of Attorney Chapter 56 Tools & Techniques of Estate Planning Copyright 2011, The National Underwriter Company8 –Your client could appoint his daughter as attorney-in-fact, while competent, to make gifts on his behalf (along with other powers) upon his becoming incompetent –Your client’s daughter could then draw checks on your client’s account to each of the donees, just as if your client drew the checks How It Is Done – An Example (cont’d)

Durable Power of Attorney Chapter 56 Tools & Techniques of Estate Planning Copyright 2011, The National Underwriter Company9 The holder of the durable power of attorney, if the power is broadly drawn, can be given: –The right to execute on behalf of the principal all tax returns including income and gift tax returns –The power to make gifts on behalf of the principal –The right to elect to treat gifts made by a competent spouse as split between the competent spouse and the incompetent principal for federal gift tax purposes –Other non-tax powers can also be given such as the power to buy or sell real estate, invest in stocks, bonds, or other securities, or the right to sue on behalf of the principal Tax Implications

Durable Power of Attorney Chapter 56 Tools & Techniques of Estate Planning Copyright 2011, The National Underwriter Company10 Transactions regarding community property often require the signature of both spouses in order to be effective Incapacity of one spouse could seriously affect the stability and viability of a community property proprietorship business Incapacity of one spouse could also prevent the sale of securities or borrowing against real estate or other property Issues In Community Property States

Durable Power of Attorney Chapter 56 Tools & Techniques of Estate Planning Copyright 2011, The National Underwriter Company11 While all states authorize some form of durable power, not all have adopted the Uniform Durable Power of Attorney provisions Not all community property states have the spouse succeed to the management of the community property, causing potential conflicts between the spouse and appointed attorney-in-fact pertaining to management and investment of community property Issues In Community Property States (cont’d)