A Power of Attorney for Property allows a person (the “Principal”) to delegate to another person (the “Agent” or “Attorney-In-Fact”), which is often a family member or trusted friend, the power to make decisions regarding the Principal’s assets, finances, bank accounts, and other types of property, including real estate. In Illinois, it is authorized under the Illinois Power of Attorney Act (755 ILCS 45/1) and can be revoked at any time and its power automatically ends upon the death of the Principal.
The Power of Attorney for Property is a flexible document in that the Principal can limit or broaden the financial decision-making authority of the Agent. Our Power of Attorney for Property document includes special provisions which are not part of the statutory form in order to work cohesively with the Power of Attorney for Health Care, Revocable Trust and other estate planning documents and to assist with gifting (where appropriate) and transferring assets in the event of incapacity.
If an individual does not have a Power of Attorney for Property or a funded revocable trust, and then becomes incapacitated, a court proceeding may be necessary to appoint a guardian to act on his or her behalf with respect to the management of his or her property. This process can be long and expensive, especially if family members disagree as to who should be elected as guardian.
Immediate versus Springing Power of Attorney for Property
In general, the Principal can provide limits to the Power of Attorney for Property, such as when the Agent can act or over certain types of property or even for a single particular transaction (i.e sale of a home, transferring a particular asset, etc.).
The Principal can also choose to have the power of attorney take effect immediately or it can become effective upon the occurrence of a certain event, such as incapacity. A power of attorney effective immediately is know as an “immediate” power of attorney. A power of attorney effective upon the occurrence of an event is known as a “springing” power of attorney.
The advantage of an immediate power of attorney is that the Agent can act on behalf of the Principal without delay. The disadvantage is that it empowers an Agent to act on the Principal’s behalf at a time when the Principal may not want or need the Agent to do so. It is important that the Principal completely trust the Agent appointed, as that individual is in a position to easily perpetrate a fraud upon the Principal.
The advantage of a “springing” power of attorney is that because it only becomes effective upon the occurrence of a certain event there is less risk of an Agent perpetrating a fraud on the Principal. The disadvantage is that it can cause delays and extra expense. For example, if the power of attorney becomes effective when the Principal is incapacitated, then it may take time to determine incapacity. Another risk is that an individual or institution to whom such a power of attorney is presented may not be satisfied that the specified event has occurred and may refuse to recognize the Agent’s authority to act for the Principal. It is very important that the specified event be spelled out clearly in the power of attorney.
Power of Attorney for Property Requirements
In order to execute an Illinois Power of Attorney for Property, the Principal must be 18 years of age and a resident of Illinois. The Agent must also be 18 years of age, and need not be an Illinois resident. Finally, the Power of Attorney for Property must be signed by the Principal, witnessed and notarized. Because Illinois requires that the Power of Attorney for Property be notarized and witnessed, most states should recognize it. A Power of Attorney for Property that has been executed in compliance with the laws of another state will be recognized in Illinois.
Selecting an Agent
When selecting an Agent, it is advisable that the Principal designates one or more successor Agents to act in case the primary agent is unable to act. It is important to select a responsible person who is financially experienced and able and willing to act on behalf of the Principal. When a power is exercised by an Agent, the agent must use due care and act in accordance with the terms of the Power of Attorney for Property, otherwise, the agent may be liable for negligent or wrongful exercise of those powers. The Agent should maintain a record of all receipts, disbursements, significant actions taken, and a listing of all persons and businesses with whom the Power of Attorney was used.
It is clear that the Power of Attorney for Property plays an important role in an estate plan. You and the attorney should look to your particular circumstances to determine which type of Power of Attorney is best suited for your needs. We welcome the opportunity to discuss the use of a Power of Attorney for Property and other estate planning vehicles with you. Please contact any of our estate planning attorneys.