Every adult should consider executing a financial power of attorney, but what is a financial power of attorney?
A financial power of attorney is a document in which you authorize another person to act on your behalf – to make decisions regarding your property and your finances. A financial power of attorney does not authorize this other person to make health care decisions for you.
You are the principal; the other person is your agent, your attorney-in-fact, or, colloquially, your “power of attorney”.
A financial power of attorney should state the powers and authorities given to your agent. Commonly, among those powers and authorities, your agent will be able to write checks, make deposits, pay bills, take care of your house, your bank account, your car, your retirement plan, enter your safe deposit box, and pay your taxes.
Importantly, a financial power of attorney does not remove your ability to make decisions for yourself if you are competent to make decisions. However, you are bound by the decisions that your agent makes on your behalf within the authority granted to your agent.
Your agent should always be someone you trust.
Your agent must act in good faith, in your best interests, and within the scope of authority granted to your agent in the document.
A general financial power of attorney is effective at moment it is signed by you in the presence of a notary public. However, you may execute more limiting powers of attorney.
The most common is providing that the power of attorney takes effect upon your incapacity. This is often referred to as a springing power. A springing power of attorney should include directions for how and who determines your incapacity. Usually, it will be your doctor or perhaps two doctors whose determinations are attached to your power of attorney. Obviously, there is a delay in your agent being able to assist you until these determinations have been made.
Another common limited power of attorney is one that limits the authority of the agent and often also limits the time for which the power of attorney remains in effect. As an example, it might be a limited power of attorney for financial matters while you are absent from the state or the country. Or it might limit your agent to acting for your solely upon the sale of a house. There are others.
Lastly, most of us have heard of the durable power of attorney, but do not truly understand what it means. A durable power of attorney is one which continues in effect even when you are incapacitated. Both general and limited powers of attorney can be durable powers. Most of the time you will want your financial power of attorney to be durable.
Attorneys specializing in estate planning can help you understand the options and assist you in deciding what works best for you and your family. This blog is a general discussion of powers of attorney. It is not legal advice to you or your family. You should consult with an attorney of your choice about your special concerns.
By: Madeleine Baugh