A durable power of attorney for financial management is a legal written document in which a person, the principal, appoints another person, the agent or attorney-in-fact, to serve on their behalf.
For example, Patricia is leaving the country for a vacation and needs to sell her house. Patricia will not be able to sign all the necessary paperwork at closing. Hence, the sale will not go through. However, Patricia appoints Amber to be her agent so that Amber can sign on Patricia's behalf in order to sell her house.
In terms of estate planning, a power of attorney is used to guard against the unexpected incapacity of a person, since your bills will still become due regardless of your physical condition. For example, Patricia is involved in a car accident causing her to fall into a coma. If Patricia lacks a power of attorney, a court-appointed conservator of her estate is needed. For sake of argument, Patricia's conservator is named Charlize. Charlize' duties are to manage and use Patricia's property for both Patricia's benefit and those for whom Patricia is obligated to support, namely children. Prob C § 2401. In short, a conservatorship is public, costly and time-consuming.
Conversely, a power of attorney can accomplish the same objectives of a conservatorship without the need for public intervention, costly expenses or length of time. Thus, estate planning attorneys almost universally include a power of attorney when writing a comprehensive estate plan so as to avoid a conservatorship. Similarly, attorneys write others legal documents to avoid the need for court intervention in other estate planning situations. For instance, a trust avoids the need to probate a trust drafter's estate.
The key when drafting a power of attorney is to make sure it is durable. In that, the power of attorney must contain a statement that the power of attorney shall not be affected by subsequent incapacity of the principal, or shall become effective upon the incapacity of the principal, or similar words. Prob C §4124. If the power of attorney lacks the language required by Prob C § 4124, the agent lacks authority during the principal's incapacity. In our case, if Patricia's power of attorney did not contain the required language of Prob C § 4124, her power of attorney would not be valid should he become incapacitated. Thus, the power of attorney would essentially be a worthless document. Consequently, Patricia would then need a court-appointed conservator of her estate to manage her financial affairs and everybody but Patricia and her family would arguably benefit, the attorney, the conservator, the accountant, etc.
Finally, it should be noted that a power of attorney for financial management only relates to a person's estate, namely their finances. The other legal aspect of an individual is their "person." Decision relating an individual's "person" relate to health care decisions. The legal document used to coordinate an individual's health care decisions with an appropriate agent is called an advance health care directive. Prob C §§4600-4806.
