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Many of us feel a well-grounded fear that we may someday become seriously ill and unable to handle our own affairs. Who would act on our behalf to pay bills, make bank deposits, watch over investments and deal with the paperwork that accompanies collecting insurance and government benefits?

Preparing a document called a durable power of attorney for finances is a simple, inexpensive and reliable way to ensure that your finances stay in the hands of a trusted person you choose. It's also a wonderful thing to do for your family members. If you do become incapacitated, the durable power of attorney will likely appear as a minor miracle to those close to you.

1. What is a durable power of attorney?

When you create and sign a power of attorney, you give another person legal authority to act on your behalf. The person who is given this authority is called your "attorney-in-fact." The word "attorney" here means anyone authorized to act on another's behalf; it's most definitely not restricted to lawyers.

A "durable" power of attorney stays valid even if you become unable to handle your own affairs (incapacitated). If you don't specify that you want your power of attorney to continue if you become incapacitated, it will automatically end (in almost all states) if you later become incapacitated.

2. When does a durable power of attorney take effect?

A durable power of attorney can be drafted so that it goes into effect as soon as you sign it. That is appropriate if you face a serious operation or incapacitating illness.

You can also specify that the durable power of attorney does not go into effect unless a doctor certifies that you have become incapacitated. This is called a "springing" durable power of attorney. It allows you to keep control over your affairs unless and until you become incapacitated, when it springs into effect.

3. What does the attorney-in-fact do?

Commonly, people give an attorney-in-fact broad power over their finances. But you can give your attorney-in-fact as much or as little power as you wish. You may want to give your attorney-in-fact authority to do some or all of the following:

* use your assets to pay your everyday expenses and those of your family * buy, sell, maintain, pay taxes on and mortgage real estate and other property * collect benefits from Social Security, Medicare or other government programs or civil or military service * invest your money in stocks, bonds and mutual funds * handle transactions with banks and other financial institutions * buy and sell insurance policies and annuities for you * file and pay your taxes * operate your small business * claim property you inherit or are otherwise entitled to * represent you in court or hire someone to represent you, and * manage your retirement accounts.

Whatever powers you give the attorney-in-fact, the attorney-in-fact must act in your best interests, keep accurate records, keep your property separate from his or hers and avoid conflicts of interest.

4. How do I create a durable power of attorney for finances?

To create a legally valid durable power of attorney, all you need to do is properly complete and sign a fill-in-the-blanks form that's a few pages long. Some states have their own forms.

After you fill out the form, you must sign it in front of a notary public. In some states, witnesses must also watch you sign the document. If your attorney-in-fact will have authority to deal with your real estate, you may also need to put a copy on file at the local land records office.

Some banks and brokerage companies have their own durable power of attorney forms. If you want your attorney-in-fact to have an easy time with these institutions, you may need to prepare two (or more) durable powers of attorney: the bank's form and a broader form.

5. What happens if I don't have a durable power of attorney for finances?

If you become incapacitated and you haven't prepared a durable power of attorney for finances, a court proceeding is probably inescapable. Your spouse, closest relatives or companion will have to ask a court for authority over at least some of your financial affairs.

If you are married, your spouse does have some authority over property you own together - to pay bills from a joint bank account, for example. There are significant limits, however, on your spouse's right to sell property owned by both of you.

If your relatives go to court to get someone appointed to manage your financial affairs, they must ask a judge to rule that you cannot take care of your own affairs - a public airing of a very private matter. And like any court proceeding, it can be expensive if a lawyer must be hired. Depending on where you live, the person appointed is called a conservator, guardian of the estate, committee or curator. When this person is appointed, the incapacitated person loses the right to control his or her own money.

The appointment of a conservator is usually just the beginning of court proceedings. Often the conservator must:

* post a bond - a kind of insurance policy that pays if the conservator steals or misuses property * prepare (or hire a lawyer or accountant to prepare) detailed financial reports and periodically file them with the court, and * get court approval for certain transactions, such as selling real estate or making slightly risky investments.

A conservatorship isn't necessarily permanent, but it may be ended only by the court.

6. Isn't a conservatorship sometimes a good idea?

In a few situations, the expense and intrusion of a conservatorship are justified:

* There's no one you trust enough to give broad authority over your property and finances. * You have a considerable amount of property and fear that family members would fight over its management if you appointed an attorney-in-fact. Your relatives may still fight, but at least the court will be there to keep an eye on your welfare and your property.

7. I have a living trust. Do I still need a durable power of attorney for finances?

A revocable living trust can be useful if you become incapable of taking care of your financial affairs. That's because the person who will distribute trust property after your death (the successor trustee) can also, in most cases, take over management of the trust property if you become incapacitated.

Few people, however, transfer all their property to a living trust, and the successor trustee has no authority over property that the trust doesn't own. So a living trust isn't a complete substitute for a durable power of attorney for finances.

8. Can my attorney-in-fact make medical decisions on my behalf?

No. A durable power of attorney for finances does not give your attorney-in-fact legal authority to make medical decisions for you.

You can, however, prepare a durable power of attorney for healthcare, a document that lets you choose someone to make medical decisions on your behalf if you can't.

In most states, you'll also want to write out your wishes in a "living will" (also called a Healthcare Directive or Directive to Physicians), which will tell your doctors your preferences about certain kinds of medical treatment and life-sustaining procedures if you can't communicate your wishes. If your living will is properly prepared, your doctors are legally bound to respect your wishes or to transfer you to a doctor who will. Most states now provide fill-in-the-blanks living will forms.

Healthcare documents are discussed in more detail in the next series of questions, Healthcare Directives.

9. When does the durable power of attorney end?

It ends at your death. That means that you can't give your attorney-in- fact authority to handle things after your death, such as paying your debts, making funeral or burial arrangements or transferring your property to the people who inherit it. If you want your attorney-in-fact to have authority to wind up your affairs after your death, use a will to name that person as your executor.

Your durable power of attorney also ends if you recover sufficiently from your injury or illness and revoke it.

10. Where can I get a durable power of attorney form?

Unfortunately, there is no one good source for current financial power of attorney forms. But here are a couple of places to start:

* About a dozen states (Alaska, California, Colorado, Connecticut, Illinois, Indiana, Minnesota, Montana, New Mexico, New York, North Carolina, Texas and Wisconsin) have their own fill-in-the-blank forms, published in their statute books. You can find your state's form by going to a law library and looking up "Durable Power of Attorney" in the index to the state statutes. Then type out a document, following the model form exactly.

* Banks and other financial institutions sometimes have their own forms to cover just transactions involving them. If you want to give someone authority over your checking account, for example, call your bank and ask if it has its own durable power of attorney form for you to sign.

If you need more help finding or filling out a form for your state, contact a lawyer.

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