Springing Powers

Springing Powers

By: Martin M. Shenkman, CPA, MBA, JD

Power of attorney grants the power to a second party, often your child, to make legal and financial decisions for you. It is usually a back up a plan, in case an unexpected accident happens and you are unable to keep your affairs in order.But what if you are uncomfortable handing over all rights to a child now, under a power of attorney, while you are still capable of managing your own affairs?Implementing a springing power of attorney could be your solution. A springing power is a power of attorney that only becomes effective if you (the grantor or person signing the power) become disabled. This approach addresses the exact concern raised. You do not provide powers to your kid as agent until you really need the help, i.e. when you cannot handle matters on your own. While this sounds seductively good and simple, as the saying goes, the devil is in the details. If you cannot trust your kid while you are alive, well and astute to keep an eye on the kid, why and how can you trust the kid to do right when you’re disabled? Furthermore, the entire concept of a springing power is often questionable. How do you define “disabled” such that the power of attorney springs into effect? There is no simple definition. What if you have a temporary illness? If you recover, how do you get the financial reins back from junior? All these issues can be dealt with, but they add complexity. Also, do not forget about HIPAA complications. This law imposes strict limitations on the disclosure of medical information. To prove disability, you need to address these requirements.Once you get through all that, your kid will have to convince the bank, or other person to accept the power. This is not always so simple. So, while a springing power can address a common parental worry, it also creates a host of issues. A power effective immediately might mitigate some of the concerns. A funded revocable living trust can provide an even more comprehensive alternative. The bottom line is, even a power of attorney, which too many people dismiss as “simple” and “standard” process, is fraught with issues that you should only ignore at your own peril.

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