Essential Series: Durable Powers of Attorney (Part 2)

The big question that should be on your mind when it comes to a Durable Financial Power of Attorney (“DPOA”) is whether you should have a Statutory Short Form Durable Power of Attorney or a Common Law Long Form Durable Power of Attorney.

As a quick reminder, the big difference between the two is that on the one hand, the Statutory Short Form DPOA must be honored by financial institutions while the Common Law DPOA can be rejected. On the other hand, the Common Law DPOA can be customized to your specific needs (for example, it can be “springing”, meaning it is only effective when you are incapacitated), while there is little to no ability to customize the Statutory Short Form DPOA (for example, it must be effective immediately). Some people like the security of a DPOA that must be honored, others find more security in having a springing DPOA. Many attorneys automatically default to having the Statutory Short Form DPOA; realistically, the issue is one that needs to be approached strategically. Here are a few strategies for setting up your DPOA.

Strategy 1: Statutory Short Form DPOA Only

In this strategy you would use the statutory short form DPOA only, and not distribute it. Let your attorneys-in-fact know where they can get a copy (your safe in your bedroom), and if they need it, they can go get it.

Strategy 2: Common Law DPOA with Confirmation

Use a Common Law DPOA, but contact your bank to see (i) whether they’ll accept a non-statutory DPOA, and (ii) if there is any language they need in the DPOA to honor it. For example, some banks are fine with the Common Law DPOA, but only if it has an arbitration clause.

Strategy 3: Use Both, with Spousal Priority

In this strategy, use both, but in the Statutory Short Form DPOA only list your spouse as the attorney-in-fact. You’ll still need to check with your banks to make sure they’ll accept the Common Law DPOA (you and your spouse could both be in a car accident together).

Strategy 4: Use Multiple with Varied Authority

Use a Statutory Short Form DPOA for some powers (such as banking), but use a Common Law DPOA for other things, like real estate holdings. Or use multiple Statutory Short Form DPOAs but vary what powers are given to what people.

Strategy 5: Statutory Short Form with Instructions

This one is not tried and true, but it seems like it would hold up. Use a Statutory Short Form DPOA, but also distribute to your Attorneys-in-Fact instructions about what you want them to do and not do. For example, only pay bills from X account, do not sell the house, etc. Theoretically, since the Attorney-in-Fact is a fiduciary, they need to be acting on your behalf when acting under the authority of the DPOA. You could even inform the banks or whomever what limitations you want for your Attorney-in-Fact. I haven’t seen this strategy tested in court, but in theory it checks out.

Strategy 6: 3rd Party Storage

Use a Statutory Short Form DPOA, but have a third party, such as a law firm, hold on to the DPOA and only give it to the Attorney-in-Fact when the third party has been provided with proof of your incapacity. This way you get the benefits of a springing DPOA, but the protections of a Statutory Short Form DPOA.

Strategy 7: Revocable Living Trust

Lastly, you can put your assets in a revocable living trust and under the language of the trust limit or customize the authorities given to your successor trustee. This doesn’t help with doing things other than managing trust assets, but for some reason banks appear to be much more open to dealing with a Successor Trustee than they are with an Attorney-in-Fact.

If you have further questions about how to set up your Durable Financial Power of Attorney or want to discuss what strategy may be best for you, please do not hesitate to reach out to Signature Law for a free consultation!