Make sure that a durable power of attorney is truly durable.

• Author: Lerman, Jerry L.

A nondurable power of attorney is a short legal form easily and inexpensively obtained from most office supply stores. It is used to grant authority to another person to make property, business and other legal decisions on a person's behalf (i.e., on behalf of the principal).

A person can set up a power of attorney either as a "general" power of attorney (which gives an agent broad authority to handle virtually all legal transactions on a principal's behalf) or as a "specific" power of attorney (which authorizes the agent to perform only specific functions on the principal's behalf, such as a house closing or business transaction), when the principal is not available to sign necessary documents. All nondurable powers of attorney limit how the agent can act on the principal's behalf, provided the principal has legal capacity.

On the other hand, an individual fearing future incapacity due to advanced age, physical disability or illness often wants an agent to act in his stead, even after the principal becomes incapacitated, and executes a "durable" power of attorney. This enables the designated agent to act for the principal, even if the principal is no longer mentally competent or physically able to make decisions. A durable power of attorney remains effective until the principal revokes it or dies.

In addition to allowing for continuity of management and safeguarding the principal's assets in the event of incapacity, a durable power of attorney can be particularly useful for estate and other tax planning purposes. A properly drafted durable power of attorney allows an agent to carry out many of the principal's important planning objectives, by granting the agent powers, such as the power to file income and gift tax returns, make gifts, disclaim property and make critical IRA elections.

Two important issues that must be considered when executing a durable power of attorney relate to (1) the selection of the agent and (2) the specific powers granted.

First, signing a broadly drafted durable power of attorney is comparable to signing a blank check. Therefore, taxpayers should be careful to choose a trusted family member, a close friend or a professional with a strong reputation to serve as the agent; such individual must be competent to carry out the powers granted. While the agent is a fiduciary subject to strict standards of care and honesty, often there is no official or government body monitoring the agent's actions, ,Thus, a principal...