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What is it? A financial power of attorney allows an agent to conduct financial transactions for the principal (the person who signed the power of attorney.) These transactions might include depositing or withdrawing money from bank accounts, signing income tax returns, or transferring assets to a trust. This type of power of attorney can also be used for selling assets, such as real property, or making investments.

If you have a trust, should you also have a durable power of attorney? Yes. Although a successor trustee can manage the trust assets if the trustor becomes incompetent, there are many financial matters that take place outside of the trust. For example, although a successor trustee can file income tax returns on behalf of the trust, he or she cannot file a personal income tax return for the trustor. The successor trustee also cannot transfer assets to the trust, but the agent under the power of attorney may have the power to make the transfers.

What are the dangers involved? The powers given to the agent are often very broad and can give the agent complete control over the principal's assets. For that reason anyone who signs this type of power of attorney should carefully review his or her choice of agents and consider limiting the power of attorney to certain transactions. A "springing" power of attorney can also be used. This type of power of attorney will not take effect until a person becomes incompetent, as certified by a physician.

Why is it called "durable?" Until 1979 in California, all powers of attorney became invalid if the signer of the power of attorney became mentally incompetent. In other words, when the power of attorney was needed the most, it was no longer valid. In 1979, the California Legislature enacted a new type of power of attorney that is known as "durable" because it does not become invalid if the signer becomes incompetent.

Will a power of attorney avoid the need for a conservatorship? Conservatorships are usually required for anyone who has become mentally incompetent or who no longer has the ability to manage his or her financial affairs. There are two aspects to a conservatorship, the right to control the conservatee's financial affairs, and the right to control the conservatee's person, such as deciding where the conservatee will live. A durable power of attorney allows the agent to control someone's financial affairs, but gives the agent no control over the conservatee's person. In many cases the power of attorney may be all that is needed if the principal is immobile, bed-ridden, or in a coma, etc. But if the principal cannot be prevented from wandering the streets at night, or giving away his or her money to strangers, for example, a conservatorship will be needed.