Our team appreciates simple solutions for complex issues. A favorite simple solution of ours is the Durable Power of Attorney. To quote the Oregon Bar Association, "A power of attorney gives someone else, called an agent, the right to make financial decisions about the things you specify in the document."
There are four main varieties of powers of attorney – limited, general, durable, and springing, but the focus of this article is on the "durable" variety. The beauty of Durable Power of Attorney (DPOA) is that it remains in effect even if you become incapacitated and it can cover assets not in your trust, like IRAs. During a meeting we had with a married couple, we brought up the subject of their DPOAs. They responded with, "Isn't that why we have a trust?" They had a revocable trust and have done an excellent job of funding it. What they did not realize is that the trust cannot own their IRAs—a very significant part of their estate. "That's okay," they said, the IRAs have beneficiaries and we recently reviewed them with you." Correct again! We then explained that beneficiaries only come into play at the death of the IRA owner.
Enter the "Grey Zone" Discussion
We described to them a potentially grey time in life, a time when an individual might become fully or partially incapacitated. This can happen at any time—early in life, late in life, on a surfboard, playing shuffleboard. It may last a short time or many years. It can happen in an instant or slowly creep up. It is during this grey time that a DPOA can be most valuable. Without it, even a spouse will have to petition the court for conservatorship of his or her spouse's IRA.
This story ended on a happy note. The couple went home, looked through their estate planning documents, and brought us back a copy of their DPOAs. It turned out that when they engaged the services of an attorney who specializes in estate planning, the attorney prepared their living trust and created DPOAs for each spouse.
We encourage you to have a DPOA as part of your overall estate planning. They aren't perfect for all situations and they aren't as comprehensive as a well drafted living trust. However, for retirement plans they are the best tool available. Hopefully you or your loved one will never enter the "grey zone" and need one.