Everyone with a complete estate plan should have a power of attorney for financial matters in case you become unable to make decisions for yourself or are unable to communicate in any way.
A power of attorney is a legal document that gives the “attorney in fact” (AKA the agent) the power to act on behalf of the “principal.” In other words, in the context of estate planning, it’s a document that says someone else can make decisions for you regarding your financial affairs.
The main purpose of the power of attorney is to ensure that a trusted nominee is ready to act if needed and thereby to avoid the expense and potential conflict of a conservatorship proceeding in the event of incapacity and the unavailability of suitable alternatives.California Estate Planning (Cal. CEB 2019) §28.1
For estate planning it is wise to name a trusted person as your attorney in fact to handle your financial affairs in case you become incapacitated. By incapacitated we mean unable to make any decisions, or unable to communicate in any way.
Capacity: a person lacks the capacity to make a decision unless the person has the ability to communicate verbally, or by any other means, the decision, and to understand and appreciate (Prob C §812):California Estate Planning (Cal. CEB 2019) §28.2
You should chose someone you trust to be your attorney in fact since they can essentially step into your shoes and make decisions which affect your financial affairs. You don’t have to give them unlimited power though. You can limit their power by the language in the document.
Also, by the way, don’t let the phrase “power of attorney” confuse you. It doesn’t mean you make them your “attorney at law” who can legally represent you before a tribunal. Rather, an “attorney in fact” can manage financial affairs on your behalf. This terminology comes from agency law where an agent acts on behalf of the principal. It is kind of like an employee acting on behalf of an employer.
A power of attorney is general unless it is specifically limited in the instrument creating it. Prob C §4261. A general power of attorney gives the agent authority to transact any and all business for the principal and to manage the principal’s property. There are, however, limits to the authority that can be delegated by general language.California Estate Planning (Cal. CEB 2019) §28.6
There is more to be said about powers of attorney. But I think you get the idea. They can be a great tool, but remember with great power comes great responsibility.
About the author: Matthew W. Camphuis is an attorney licensed by the California State Bar and the Central District Court. He focuses on IRS tax debt controversy, IRS tax audit defense, California State Tax Controversy, chapter 7 bankruptcy, estate planning and wills and trusts. His office is located in Ontario, California and he serves the Inland Empire and High Desert communities in Southern California.