The Power of Attorney is a big part of the “Big Four” set of Estate Planning documents
The “Power of Attorney” is a vital part of the “stack” of estate planning documents commonly provided by attorneys when completing an overall estate plan. While estate planning documents can include a wide range of things, the most common are as follows:
There are many other estate planning documents. However, these are the “big four.” The Revocable Living Trust is the backbone of any estate plan. It deals with the question of what happens in the event of both death and incapacity. For Muslims, it is vital that this contains provisions for the Islamic Rules of Inheritance and the Wasiyyah.
The Last Will and Testament, deals only with what happens after death. This is a backup document, but it is coordinated with the Islamic Inheritance plan, specified in the living trust. The healthcare directive deals with what happens if a person cannot make healthcare decisions for themselves.
The Power of Attorney (often called a POA) deals with what happens in the event of incapacity, but not always. In fact, we often don’t even associate it necessarily with incapacity. Traditionally, A “Power of Attorney” has no effect once the “principal” (the person who signs the power of attorney) is financially incapacitated. That is not the kind of Power of Attorney estate planning attorneys use when preparing an estate plan, since estate planning is often concerned with “what if” scenarios.
What Power of Attorney does
Traditional Power of Attorney
Salma is a successful children’s book author. She gets revenue from a variety of sources, movies, music, touring, endorsements and the like. Her husband Adam is her business manager. Salma trusts Adam to manage all her financial affairs. She signed the Power of Attorney allowing Adam to invest her money and pursue various business deals as Adam sees fit so that Salma can focus on her creativity child-rearing, and lifestyle without worrying about her day-to-day financial affairs. Salma grants Adam a Power of Attorney, where Adam manages her financial affairs, periodically consulting with Salma.
However, for nearly everything, Adam has the power to sign Salma’s name as her agent under the power of attorney. In this case, Salma is the “principal” and Adam is the “agent.” The “agent” is sometimes also referred to as a “attorney-in-fact.”
In a traditional Power of Attorney, if Salma were to become financially incapacitated, Adam can no longer make financial decisions for Salma.
Durable Power of Attorney
Salma has the exact same relationship with Adam. However, if Salma is financially incapacitated, Adam can continue signing for Salma. We call this a “Durable Power Of Attorney.” If Salma were to become comatose for an extended period, develop dementia or have some other calamity or life circumstance that prevents Salma from maintaining his executive decision-making ability, Adam can simply go on and make decisions for him.
Springing Durable Power of Attorney
Salma and Adam do their estate planning. Salma sets up her plan so that Adam does not immediately have the power to sign Salma’s name even though she made him her agent in this document. This is because she signed something called an “Springing Durable Power Of Attorney.”
A Springing Durable Power of Attorney is one of the more common devices used by estate planning attorneys. It only comes into effect if a “spring” is sprung. That spring can exist in the revocable living trust, or in the Power of Attorney itself. The spring occurs only if:
- Salma is incapacitated.
- Salma decides she wants to give Adam all of her authority regardless of his incapacity.
Definition of Incapacity
Most people prefer they maintain their own liberty and freedom and not simply headed over to another individual. People like freedom and personal liberty. There may be business or practical reasons to hand somebody Power of Attorney right now. Many people would be completely fine handing over that authority the other spouse immediately. Indeed, some estate planning attorneys prefer doing this.
But in the event that we have a “Springing Durable Power of Attorney” there needs to be a way to define incapacity. In general, people create incapacity provisions in a revocable living trust and a Power of Attorney document to avoid a conservatorship. A conservatorship is a judge supervised process to deal with allegations of loss of capacity and managing the affairs of those who have been adjudged to have lost that capacity. It is often a difficult system for families.
One of the major reasons to do an estate plan with an attorney is to maintain dignity and privacy for families during their more difficult periods.
Disputes over Capacity
Say Salma, from our earlier example, is making some pretty bad financial decisions. She is hanging out with a new group of friends, somewhat younger than her, that appear to be exploiting her financially. Adam, her husband, becomes alarmed and wants to do something about it. His children, who are adults now, are similarly alarmed.
Salma, in this situation, seems completely normal. She is intelligent, funny and more than capable of dispensing wisdom. She does not believe she is being financially exploited and enjoys the company of these new friends.
They have a few options in this situation
- They can convince Salma that she has lost financial capacity and agree to sign a document that gives Adam power over his affairs so that this financial exploitation can stop.
- If the estate planning documents contain a provision to determine incapacity, which could include the use of medical doctors or a panel of family members or others that can decide the issue of incapacity privately, they may go about doing that.
- They can get a court to decide on Salma’s incapacity against his will.
Peace of Mind
Estate planning documents are the byproduct of a process and not merely a thing you sign. For Islamic Estate Planning, there is no leeway in how much one heir gets versus another heir. That is ordained in Islam. However, you have a massive amount of leeway when it comes to other aspects of your planning. That includes incapacity planning.
What one person is comfortable with may not be the same as what another person, including a spouse, may be comfortable with. It is vital to have a conversation about these things before signing anything.
Don’t take the Power of Attorney lightly.
To discuss Islamic Estate Planning with Attorney Ahmed Shaikh, you can schedule a 15-minute Zoom call by clicking here.