Anchor Law Blog

Durable financial powers of attorney are essential components of a complete estate plan. These legal instruments allow a person, called the “principal,” to authorize another individual, known as the “agent” or “attorney-in-fact,” to handle financial and property-related matters on the principal’s behalf. When crafted properly, a durable power of attorney ensures continuity of financial management in the event of incapacity and avoids the need for a court-appointed conservator. With the implementation of Michigan’s Uniform Power of Attorney Act (“UPOAA”), effective July 1, 2024, significant reforms have changed the standards of financial powers of attorney.

A power of attorney is considered “durable” when it remains valid despite the principal’s later incapacity or disability. This durability is critical, because traditional powers of attorney (absent the appropriate language) may have continuity problems. The UPOAA resolves this by assuming durability unless expressly limited otherwise. Furthermore, Michigan law now recognizes a statutory form that simplifies acceptance by financial institutions, reduces ambiguity, and enhances protections for all parties involved.

To execute a durable financial power of attorney, the principal must possess the requisite legal capacity. This means they must understand, in a reasonable manner, the nature and effect of the document they are signing. Capacity is evaluated based on the individual’s ability to understand the nature of the agent relationship, appreciate the implications of delegating authority, and make a voluntary, knowing decision free of coercion. If there is any concern about undue influence or diminished cognition, practitioners should meet with the principal privately and document the discussion and capacity determination.

Execution (signing) formalities are important. The document must be dated and signed by the principal. It must also be either signed before two witnesses or acknowledged before a notary public. While only one of these methods is required, using both witnesses and a notary helps ensure the document is self-proving and capable of being recorded, especially for powers involving real estate. Michigan recording statutes require careful attention to formatting, margins, font size, and other mechanical features. Anchor Bay Law always utilizes two witnesses and requires acknowledgment before a notary.

The agent must also sign an acknowledgment of duties. This acknowledgment, now explicitly required under the UPOAA, helps prevent abuse by educating the agent on fiduciary standards and responsibilities. The agent must act in good faith, for the exclusive benefit of the principal, and in accordance with the principal’s known expectations and best interests. This fiduciary duty includes maintaining records, avoiding conflicts of interest, preserving the principal’s estate plan, and cooperating with any designated health care agents.

One of the most critical drafting considerations is determining whether the power of attorney becomes effective immediately or only upon the principal’s incapacity. So-called “springing” powers of attorney only become operative upon a specified triggering event, usually a medical determination of incapacity. While springing powers appeal to those who value control, they create administrative hurdles. Financial institutions often hesitate to honor them without clear documentation from medical providers. Moreover, some physicians are reluctant to make definitive capacity determinations in writing. For these reasons, Anchor Bay Law recommends immediate-effect durable powers of attorney that the agent may use as needed, subject to fiduciary limits, under your direction as the principal.

The durable financial power of attorney may grant either general authority over all lawful financial matters, or limited authority over specific tasks. General authority under the UPOAA includes management of real and personal property, banking, stocks and bonds, insurance, litigation, government benefits, taxes, retirement accounts, and business interests. The statutory language allows for incorporation of specific powers by reference to UPOAA sections, thereby streamlining drafting while preserving full effect. Agents may act broadly, unless specific powers are restricted or expressly withheld by the principal.

Despite this broad authority, certain powers must be expressly granted. These include the power to make gifts, amend or revoke a trust, create or change rights of survivorship or beneficiary designations, delegate the power itself, waive survivor benefits in retirement plans, and exercise fiduciary powers. Unless the document clearly authorizes these actions, the agent lacks authority to perform them, even if acting in the principal’s best interest. This explicit grant requirement safeguards the principal’s estate plan and limits misuse of power.

In addition to gifting, modern powers of attorney drafted by Anchor Bay Law may also authorize the agent to manage digital assets. This has become an essential provision in a digital world, where critical financial information may be stored electronically or protected by passwords.

Third-party acceptance, however, remains a challenge. Banks and brokerage firms sometimes hesitate to accept powers of attorney, especially if they were executed years earlier or appear ambiguous. Some institutions impose arbitrary “expiration” dates or demand certification of validity. Michigan’s UPOAA aims to mitigate this by offering a standardized form and encouraging uniform practices, but issues still arise. Anchor Bay Law recommends that clients visit their banks and file the power of attorney with account representatives, ensuring the agent is on file and authorized.

Anchor Bay Law assists clients with preparing durable financial powers of attorney that are clean and clear. Whether you are creating your first estate plan or updating outdated forms, Anchor Bay Law offers knowledgeable guidance on how best to protect your assets, honor your wishes, and hopefully avoid costly court proceedings. A well-drafted durable power of attorney can be of great peace of mind.