What Happens to Your Power of Attorney (POA) When You Die?
Everyone needs a general power of attorney. Having someone else who can handle your financial affairs if you are out of the country or have become incapacitated is essential.
However, one significant limitation of a power of attorney is that this designation ends at your death.
You might have a power of attorney so that a trusted person can make financial decisions on your behalf and to protect your financial interests if you become incapacitated. This person can have a lot of responsibility -- dealing with banks, the IRS, your creditors, and many other entities. He or she might pay your taxes, handle legal claims on your behalf and apply for benefits.
However, everything stops at the time of your death. Your power of attorney is no longer effective.
Some extra things to keep in mind include:
Executor. After death, the executor you appointed in your will gains access to your finances and is legally entitled to act on your estate’s behalf. After handling any debts of the estate, your executor distributes the remaining balance in your accounts to your beneficiaries. POA’s are great, but they do come to an end. It’s important to consider who your executor will be and whether you want to nominate the same person for this position.
Incapacitation. You can revoke your Virginia power of attorney whenever you want – so long as you still have your wits about you. If you become incapacitated, your durable power of attorney will take over and will not be terminated unless the court orders it or you die.
Knowledge of Death. Once an agent acting under your power of attorney learns of your death, he or she can no longer act on your behalf. He or she cannot run to the bank and try to take out all of the remaining money. His or her power is now gone.
While a durable power of attorney in Virginia is an important estate planning tool, there are other important considerations for your estate plan.
We can walk through your estate plan with you, piece by piece, and offer you guidance and suggestions. If you would like help setting up a strong estate plan that is customized to your needs, contact us today at 804-658-3873 or at firstname.lastname@example.org.
Virginia Uniform Power of Attorney Act
Due to medical advances, people are living longer than ever. In fact, the fastest growing segment of the U.S. population are folks over the age of 65. With increased age often comes the increased likelihood that someone will suffer some sort of disability or incapacity. It is important to plan for this possibility, and a good tool is the durable power of attorney. Fortunately, Virginia has recently taken an important step in passing into law the Virginia Uniform Power of Attorney Act (UPOAA). So, what does the UPOAA do and why is it important to me?
Let’s start with a basic overview. The person creating the power of attorney (called the “principal”) appoints an “agent” who will have legal authority to act with third parties on the principal’s behalf. These third parties often include banks, financial institutions, creditors, the IRS, etc. In the event that the principal is unable to act with respect to these types of third-party relationships, the appointed agent “steps in the shoes” of the principal and can get things done on his or her behalf. This type of principal/agent relationship is particularly helpful if the principal has become incapacitated and lacks the legal competence to handle legal transactions on his or her own.
In July of 2010, the Virginia General Assembly enacted Virginia’s version of the Uniform Power of Attorney Act. Why did we need this? Prior to the UPOAA’s enactment, the laws governing the creation and enforceability of powers of attorney were spread out among dozens of statutes in various titles of the Virginia code and in case opinions written by judges. These various laws and opinions were not always consistent with one another, nor did they provide answers to all of the legal questions surrounding powers of attorney. The UPOAA consolidates all of the laws relating to powers of attorney into one section of the Virginia Code, and it does a good job at codifying prior case law and lawyers’ best practices over the years.
One of the best things about the UPOAA is a principal’s ability to incorporate by reference specific statutes granting the agent powers. These statutes include:
64.2-1625 (Real Property)
64.2-1626 (Tangible Personal Property)
64.2-1627 (Stocks and Bonds)
64.2-1628 (Commodities and Options)
64.2-1629 (Banks and Other Financial Institutions)
64.2-1630 (Operation of an Entity or Business)
64.2-1631 (Insurance and Annuities)
64.2-1632 (Estates, Trusts, and Other Beneficial Interests)
64.2-1633 (Claims and Litigation)
64.2-1634 (Personal and Family Maintenance)
64.2-1635 (Benefits from Governmental Programs or Civil or Military Service)
64.2-1636 (Retirement Plans)
So, with the UPOAA, your power of attorney document does not need to run on for dozens of pages. You may simply incorporate some or all of the statutes above by reference. Perhaps even better, you may simply say, “I grant my agent authority to do all acts that I could do as set forth and defined by the Uniform Power of Attorney Act” (or words to that effect). Saying just this will legally authorize your agent to act on your behalf with respect to all of the transactions above.
It is important to note, however, that there are certain powers that a principal must expressly grant to his or her agent for them to be effective. These so-called “hot powers” include:
Creating, amending, revoking, or terminating an inter vivos (living) trust
Making a gift greater than that which is customary
Creating or changing rights of survivorship
Creating or changing a beneficiary designation
Delegating authority granted under the power of attorney itself
Waiving the principal’s right to be a beneficiary of a joint and survivor annuity, including a survivor benefit under a retirement plan
Exercising fiduciary powers that the principal has authority to delegate
In conclusion, the UPOAA has done a nice job at consolidating these laws into one place and providing a streamlined way for people to create powers of attorney. Hopefully, with this new act, we will see an increase in the number of powers of attorney being created. If you would like help putting together a power of attorney, or would like to learn more, please give us a call at 804-658-3873 or email us at email@example.com. Thanks for reading!
Importance of Planning with Powers of Attorney
Most people know what a power of attorney (POA) is, and most people understand that having one is important. It may not come as a surprise, however, that most people don’t have one. Well, everyone needs one. I am going to share a true story to help make that point. Before I get into the story, here is a brief review of the two major types of POA’s and what they do for you.
Powers of attorney are designed to give another person (the “agent”) legal authority (or power) to make important decisions when you (the “principal”) cannot. In the context of long-term planning, there are generally two types of POA’s – the business (or financial) power of attorney and the medical power of attorney. Both need to be in writing and executed (oftentimes notarized and witnessed) in accordance with the laws of your state, and you should consult a lawyer to help you.
A business POA gives another person the legal authority to make business or financial decisions for you when you have become incapacitated and rendered incapable of making such decisions on your own. For example, you can be rendered incapable of making these decisions after being diagnosed with a debilitating disease or having been seriously injured in a car accident. A general POA gives the legal authority to your agent to make financial or business decisions on your behalf – handle bank accounts, insurance policies, deal with real estate, handle stocks, bonds, mutual funds, etc. In your written POA, you can limit the authority of your agent should you choose to do so, or your agent’s authority can be “general” and limited only as required by law.
A medical POA is a legal document that designates a person — referred to as your “health care agent” or “proxy” — to make medical decisions for you in the event that you are unable to do so. A medical POA is sometimes called a “durable power of attorney for health care.” This POA becomes effective once a treating doctor declares that you lack the capacity to make treatment decisions on your own. The medical POA does not give your agent the right to make financial decisions on your behalf. (That is handled separately by the business POA discussed above; although, the agent can be the same person if that is whom you have chosen to make all of these decisions for you.)
Now, as promised, here is the story. A very nice couple had been happily married for 53 years. When both husband and wife were in the mid-seventies, the husband began to grow increasing agitated and forgetful. One day, things at home escalated and the husband became violent. The wife called for help, and her husband was removed from the situation. Soon thereafter, the husband was diagnosed with moderate dementia, including Alzheimer’s disease. Due to his condition, a doctor declared him unfit to make financial and treatment decisions on his own, and he was placed in a care facility.
For the entirety of their marriage, the wife had handled all of the finances. As usual, their home was titled jointly in both of their names, and the husband had life insurance policies and some other assets titled in his name only. As luck would have it, prior to the episode at home that evening, the couple was scheduled to close later that same week on a real estate transaction where they planned to sell some of their jointly-titled real estate to a family member so that family member could build a home. Neither husband nor wife had a business or medical POA. When the real estate lawyers learned of the husband’s diagnosis, they requested a copy of the husband’s POA so they could proceed to closing. Because the husband did not have one, the closing was cancelled and the transaction could not go through. More importantly, the couple was on a fixed income, and credit card bills began to increase significantly to pay for medical expenses, leaving the wife unable to pay the bills. Although the couple had a good amount of equity in their long-time family home, the wife could not refinance the property on her own, because the house was titled in both hers and her husband’s name. If she could refinance the home, she could have paid off her high interest rate credit card debt, perhaps saving her a $1,000 per month and allowing her to pay her bills. Contrary to many people’s belief, a spouse does not automatically get the legal authority to act on the other spouse’s behalf when the other spouse becomes incapacitated.
What could she do? There was no power of attorney. Now that the husband has been declared incapacitated, it was too late to execute one; the husband lacked the legal capacity to do so. Without a power of attorney for her husband, the wife could not sell the real estate to her family member. She could not refinance the family home to pay down credit cards. She could not access the cash value locked up in her husband’s life insurance policy. Her only option at that point was to petition the Circuit Court where she lived and ask the Court to appoint her as a conservator and guardian of her incapacitated husband. Fortunately, Virginia law provides for such a procedure. Unfortunately, this is an involved, complex, and expensive process, taking about two months to complete and costing the wife approximately $3,000 in legal fees. Had the husband had a valid business power of attorney, which would have only cost approximately $100 to prepare, the wife could have signed legal documents on his behalf and avoided many of these problems. Ben Franklin’s old expression, “An ounce of prevention is worth a pound of cure,” is quite appropriate here.
This is just one example of how important it is to have appropriate powers of attorney in place. There are surely countless other stories similar to this one occurring every day. Don’t put it off, contact a good attorney and get started on drafting powers of attorney today.