Protecting your assets is an important part of sound financial planning. Assuming your property consists of more than a brimming closet, you may find it beneficial to spend a few days researching how best to plan for the future. Following are the ten most common questions surrounding the issue of durable power of attorney.

1. What’s a durable power of attorney?

A power of attorney (POA), also called a letter of attorney, is a document that authorizes another person, known as the agent or attorney-in-fact to handle any combination of financial, legal and health care decisions. The agent or attorney-in-fact is usually a legally competent relative or close friend over 18 years old. You can designate a power of attorney as a provision in the event that you should become incapacitated. It is best practice, although not necessary, to have an elder law attorney draw up the document so that it specifies exactly which responsibilities you grant your agent. Establishing a durable power of attorney does not strip you, the principal, of the power to make decisions; it merely assigns another person to share the responsibility.

2. Are there different types of power of attorney documents?

The three main types of documents are non-durable, durable and springing powers of attorney. A nondurable power of attorney cannot act on your behalf if you become disabled or incompetent. A nondurable power of attorney is chosen normally for a specific matter, such as handling your affairs in your physical absence. A durable power of attorney is usually used in estate planning, through which seniors plan for future incapacity. A durable power of attorney is effective regardless of your health condition. A springing power of attorney becomes effective at a specific time in the future, perhaps in the event of an illness.

3. How do I decide who to choose as my agent?

Choosing an agent is one of the most difficult and important aspects of the process. Never allow anyone to force you to assign a durable power of attorney if you are not fully educated on the process and aren’t convinced you are choosing the most trustworthy, responsible person for the job. It is crucial that you choose someone who will follow your explicit instructions and whom you trust to act in your best interests. Your agent will have the freedom to handle your assets as he or she sees fit, so you may want to consider a potential agent’s financial knowledge or capacity for seeking and accepting outside help. Also keep in mind that your agent will potentially spend a great deal of time acting on your behalf with no financial compensation for these efforts.

4. How do I execute a durable POA?

To execute a power of attorney you must be over 18 and fully competent, meaning you understand the implications of your decision. A notary public or attorney must witness your signing the letter of attorney. Some states require two witnesses. In the document, you'll specify exactly which powers you are transferring to the agent. If the durable power of attorney specifies responsibilities regarding real estate, the letter of attorney should be recorded with the Registry of Deeds, which you’ll find in the county courthouse where your property is located. If you'd like it to take immediate effect, give the original copy to the agent and keep a copy for your own records. Otherwise you should hold onto the original until you'd like it to take effect.

5. What does "incapacity" in legal terms?

The definition of incapacity is spelled out within the document. As such, it's important to identify a specific event, such as when your doctor certifies you are no longer able to handle your own affairs. In a legal document as important as this, you don’t want to leave anything open to interpretation.

6. What does a durable power of attorney do?

You can assign your durable power of attorney as much or as little control as you choose. People generally give extensive power over their finances, expecting their agent to keep accurate records. Agents always should keep his or her own affairs separate to avoid conflicts of interest. Some commonly assigned powers include:

1. Making critical decisions about your health care. A durable power of attorney for health care (which must be specified) has the authority to make medical treatment decisions, according to the limits you outline, when you are unable to do so. Additionally, an elder law attorney can create a living will, which outlines your wishes if you become terminally ill and are unable to consent to or refuse medical treatment. Alternatively, you can fill out a prepared living will form on your own. 5 Wishes is a very accessible and inexpensive living will that covers all the basics and is valid in most states.
2. Managing your finances. A durable power of attorney can make bank transactions, pay your bills, attend to tax matters, fill out insurance and benefits paperwork, use your assets to cover your everyday expenses, collect Social Security, Medicare and other federally issued benefits, invest your money, file your taxes and manage your retirement accounts.
3. Managing your property. If you don't have a revocable living trust, you could assign this responsibility to your agent; however, usually a revocable living trust is used to outline how your property should be managed and distributed in the event of your death. Your durable power of attorney administers property not outlined in the trust only in the event of your incompetence.
4. Acting on your behalf with third parties. By providing a letter of attorney, your agent will be able to communicate on your behalf with businesses such as electric or credit card companies without any question as to their authorization.

7. Are there any drawbacks to having a durable power of attorney?

Since a power of attorney is not issued by the court, some parties may not recognize your durable power of attorney, especially if it's over a year old. Also, you cannot compel anyone to honor it without taking legal action. It is in your best interest to re-sign the document annually to keep the record current. Keep in mind that revoking your power of attorney can be complicated if the agent has distributed copies to multiple third parties.

8. What needs to be done to revoke a durable power of attorney?

You can change your agent or the terms of a power of attorney document at any time, for any reason, as long as you are of sound mind. You’ll need to draft and date a statement of revocation that includes:

• Your name
• A statement of your competence
• The date you initially drafted the power of attorney
• The name of the person you assigned as an agent
• Your signature

You can also use this form to revoke your letter of attorney and appoint another agent at the same time. Distribute the revocation to the initial agent and any third parties with whom the he or she has dealt. The court can invalidate the document if it determines you to have been incompetent when you signed it. If your spouse is your agent and you get divorced, the power of attorney terminates immediately. If it's never revoked, your durable power of attorney will terminate when you die.

9. What are the alternatives to a power of attorney?

If you do not want to choose a power of attorney or are incapable of doing so, a guardian or conservator may be appointed by probate court. A guardian or conservator will have control of your assets, but the court should closely monitor their actions. There is no guarantee, however, that the conservator will act according to your wishes.

10. What happens if the agent abuses the power of attorney?

The potential for fraud, unfortunately, is vast. Unfortunately, unlawful gifting and embezzlement are common, and sometimes agents deplete the majority of the principal’s estate, open bank accounts with new titles, or change beneficiary designations. If your attorney-in-fact has abused his or her powers, you should have grounds to sue for return of property and assets and monetary damages. If the abuse is uncovered by your beneficiaries after you’ve passed, they may be able to sue for a number of causes of action.