A Durable General Power of Attorney is likely the most important Estate Planning document. In North Carolina, how does anyone act on your behalf with your financial affairs if you are incapacitated or incompetent? Absent a legal document known as a durable general power of attorney and an attorney-in-fact/agent acting on your behalf under the authority granted by that document, the court must appoint a general guardian or “guardian of the estate” to handle your financial affairs if there are no other means to handle them. Having the court appoint an individual as your guardian is incredibly expensive, time-consuming, and the guardian must obtain a bond through a bonding company. If there is conflict as to whom the court should appoint, the court may appoint an independent, third-party (e.g., an attorney) to be guardian of the estate.
A durable general power of attorney is a legal document which survives your incapacity or incompetency (i.e., that is how it is a “durable” general power of attorney). Although your named agent is a fiduciary if he or she acts on your behalf (e.g., must act in your best interests), your agent (depending on the effective date of the document) in most circumstances has actual authority to act on your behalf; there have been instances wherein the agent has stolen assets or used assets for his or her own benefit. The likelihood of a breach of fiduciary duty can be lessened by naming an agent who you trust; if you have any doubts about the agent for any reason, don’t name that person or entity as your agent. Co-agents can be a check and a balance against a breach of fiduciary duty, but having co-agents who must act together means that they must act together which can create a logjam in the administration of your assets, even if they get along (e.g., distance can cause delays in effective administration). In addition, you can require your agent to do accountings of his or her actions on your behalf to a third-party to ensure that individual is acting in your best interests.
In North Carolina, a durable general power of attorney can be effective when you sign it and have your signature notarized. In the alternative, it can become effective after signature and notarization when you are incapacitated or incompetent as determined by a physician or physicians or when you authorize your agent to act on your behalf (preferably in writing). You can have a third-party make it effective, like a light switch – power of attorney ON, power of attorney OFF.
What powers should your agent have? In general, your agent should have the same power to do anything with your assets as though you are standing there yourself saying it is ok – that is why it is a general power of attorney. For example, if you have retirement benefits (e.g., 401(k), IRA, etc.), your power of attorney should include provisions to enable your agent to deal with them. Should your agent have the power to make gifts? It depends. The necessity for making gifts for federal estate tax purposes may have lessened (i.e., to reduce the size of your taxable estate) due to large size of the federal estate tax exemption (amount you can pass free of estate tax at the time of your death), but there may be other reasons to enable your agent to make gifts. You may want your agent to be able to help your children/grandchildren if they fall on hard times, or help them to go to college or pay medical expenses, etc.
Some other attorneys recommend that you give the power of attorney to your agent immediately; I disagree. I recommend that you give your agent access to your power of attorney, but do not give it to her or him until you want or need for them to act on your behalf. It’s also easier to change or revoke your power of attorney if you haven’t provided your agent with an original. Finally, your power of attorney is a very important document because you can be incapacitated or incompetent for years, so it is imperative that you give someone the ability to act on your behalf with your finances.