Estate and incapacity planning documents

Wills and codicils, revocable living trusts, durable powers of attorney, health care proxies and advance directives, HIPAA authorisations and letters of instruction: what each does, when it takes effect and which gap in a described client's documents matters most.

Durable power of attorneyAdvance health care directive

Practice question for this objective

Free sampleEstate Planningmedium

Helena, aged 78 and widowed, signed a general power of attorney ten years ago appointing her daughter as agent over her bank and investment accounts. The instrument grants broad financial authority, takes effect on signing, and says nothing at all about what is to happen if Helena loses capacity. Helena has since been diagnosed with advanced dementia and two physicians have certified in writing that she can no longer manage her own affairs. Her daughter presents the instrument to the bank and asks to move funds to pay for residential care. Assume the governing state follows the common law rule that a power of attorney is not durable unless the instrument says so. What is the legal position of that instrument now?

AThe power terminated when Helena lost capacity, so her daughter will probably need a court-appointed conservatorship or guardianship of the estate Correct
BThe power remains fully effective, because a general power of attorney reaches every financial matter until the principal revokes it or dies
CThe power springs into effect only now, because an agent's authority under a general power begins when the principal is certified as incapacitated
DThe power survives as to health care decisions only, because a general power's financial authority lapses once two physicians certify incapacity

A power of attorney survives the principal's incapacity only if it contains durability language, which is precisely when the authority is most needed. Agency law ends an agent's authority when the principal loses capacity, because the agent acts as an extension of a competent principal's own will. A durable power of attorney overrides that default by stating that the authority is not affected by the principal's later disability or incapacity. Helena's instrument is broad in subject matter but silent on durability, so the very event that made the agency useful is the event that ended it. A springing power is the third variant: it is durable but deliberately dormant until a stated trigger, usually a physician's certification, so it grants nothing before that point and everything after it. Where no durable instrument exists, the family's remaining option is a court-appointed conservator or guardian of the estate, which is slower, public and more expensive than the document Helena could have signed.

Why A is correct: A power of attorney that lacks durability language ends by operation of law at the principal's incapacity, leaving a court-supervised conservatorship as the remaining route to authority over her assets.

Why B is wrong: The breadth of the powers granted is tempting, but breadth of subject matter and survival of incapacity are different questions; a common law agency ends when the principal loses capacity unless the document says it endures.

Why C is wrong: This describes a springing power, which is a separate drafting choice that names an incapacity trigger; this instrument took effect on signing and carries no springing clause, so nothing was waiting to be triggered.

Why D is wrong: Authority over medical decisions comes from a separate health care instrument and is never implied by a financial power, so an instrument covering accounts cannot convert itself into a medical authority on incapacity.

See more CFP practice questions, answers explained.

Exam traps in Estate Planning

Answers that look right on this material and are not. Each one is a distractor from a different question in the CFP bank for this domain.

A more detailed living will setting out his treatment preferences at greater length, since a fuller written statement of wishes governs whatever medical situation later arises
Why it is wrong: Adding detail is tempting because the gap looks like a drafting omission, but no written statement can anticipate every clinical situation, and a living will is a set of instructions rather than a person able to answer a question the document did not foresee.
No part of the death benefit is included in his gross estate, because he had surrendered the incidents of ownership on assignment and the trust owned the policy when he died
Why it is wrong: This would be right had he survived long enough, and it correctly identifies incidents of ownership as the usual test, but a separate rule reaches back and undoes a life insurance transfer made shortly before death regardless of who owned the policy at the date of death.

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