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Protect Your Family With A Durable Power Of Attorney

Most doctors have a properly executed will that pays off their debts and taxes, and disposes of their wealth, in the event of their death. Unfortunately, most have made no provisions if they become disabled or legally incompetent due to serious illness or accident.

How will the doctor’s savings and investments be handled if she cannot handle them herself? How will ongoing obligations such as mortgages, children’s tuition bills, and even family living expenses be paid if the doctor cannot sign checks, sell investments, or transfer funds?

Protecting Against Incapacity

For those reasons, we recommend a “durable power of attorney” for every doctor and spouse. This document authorizes another person to transact business on the doctor’s behalf, including the authority to sign for the doctor in order to sell stocks (including dental corporation stock) or bonds, enter safe deposit boxes, sign tax returns, sell and/or refinance personal and practice real estate, and many other necessary actions. It is called “durable” because, though signed when the doctor is legally capable to do so, it continues in effect even if the doctor becomes legally incompetent. Special language is required in the document to achieve this result.

Although we recommend a durable power of attorney as part of every doctor’s estate plan, there are some risks involved. For example, the person you appoint as your “attorney-in-fact” (who needs not be a lawyer) becomes authorized to act immediately, even if you are not physically or mentally disabled. You can inform your attorney-in-fact that the power should be used only once you become disabled, incompetent, or otherwise unable to handle your affairs. Nevertheless, the person appointed has full power to act on your behalf, once the legal document is both signed and recorded.

Avoiding Premature Use

One way to avoid problems with premature use is to utilize a “springing” power of attorney. This document specifically states that it becomes effective only upon the doctor’s incapacity. Usually, the determination of incapacity is based upon the certification by two attending physicians, if the doctor is unable to act on her own behalf. Unfortunately, the drawback here is that others cannot rely on this without proof that the doctor is actually legally incompetent, which may require a court determination.  Accordingly, it may lose the very feature that makes it useful – the immediate ability to act when the doctor is unable to do so.

A second strategy to guard against premature usage should be considered. After having several copies of the power of attorney signed, ask your lawyer to retain the originals in the law firm safe, giving only unsigned copies to your attorney-in-fact and other family members. In addition, be sure to write on that copy where the signed originals are located, along with the attorney’s name and phone number. Your attorney-in-fact will thus know about the arrangement and be prepared to act if, and when, necessary. The doctor can then instruct her lawyer to provide the signed documents to her attorney-in-fact only if, and when, her condition requires its use.

Protecting Against Misuse

Once it is clear that the time has come to invoke the power of attorney, another concern arises – how to protect the family against financial loss due to misappropriation through using the power of attorney? After all, once the signed power of attorney is recorded, it becomes effective and the attorney in fact has the same legal powers as the doctor.

Two strategies can help avoid problems here. First, the power of attorney could require the attorney in fact to make full disclosure of all transactions to the beneficiaries named under the doctor’s will. In order to carry this out, the attorney in fact would be required to provide copies of bank statements, deposit slips, cancelled checks, and investment statements to each beneficiary as long as the power of attorney remains in effect. Moreover, the power of attorney could require that financial institutions holding the doctor’s accounts provide duplicate statements directly to the beneficiaries. Providing full disclosure of all material facts regarding transactions using the power of attorney can guard against the temptation of misappropriation and eliminate misunderstanding as well.

Another strategy can provide even greater protection. Under this approach, the power of attorney can provide that, for any transaction involving more than a specified dollar amount ($5,000-$10,000, etc.), the signatures of at least two individuals (the main attorney-in-fact and possibly the alternate) would be required. This provides an effective checks and balance to assure that large dollar transactions are handled in the best interest of all parties involved.

A durable power of attorney is a vital part of every doctor’s estate plan. Through implementing the safeguards recommended above, doctors can be assured that their family is protected, while the risk of misuse and resulting financial loss is minimized.

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The McGill Advisory is designed to provide accurate and authoritative information with regard to the subject matter covered. It is sold with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional services. If legal or accounting advice or other expert assistance is required, the services of a competent professional should be sought.

Copyright © 2017 John K. McGill & Company, Inc. All Rights Reserved.