Financial Power of Attorney

When it comes to your finances, you want to know that everything is being managed as effectively and efficiently as possible. You don’t want unnecessary delays or mistakes that could cost you money and cause stress. If you plan on traveling, moving away from home, or taking care of an elderly parent, it’s important that you take the time to create a financial power of attorney—specifically naming someone who has full authority over your financial affairs if something were to happen to you.

What is a Financial Power of Attorney?

A Financial Power of Attorney (POA) is a document that gives someone else the authority to make financial decisions on your behalf. The person who is granted this power is called the attorney-in-fact and can be compensated for their services.

The person who grants this power is called the principal and can revoke it at any time by notifying all parties involved in writing or by executing another POA document designating someone new as attorney-in-fact.

The principal should ensure that the attorney-in-fact is competent to make these decisions and has no conflict of interest. The principal should also be sure that the attorney-in-fact is willing to take on this responsibility. A financial POA can be broad or narrow in scope, depending on what type of authority you want granted.

In a broad POA, the attorney-in-fact has the authority to make financial decisions on your behalf. This can include selling property and paying off debt, but it does not include changing beneficiary designations on your retirement accounts or life insurance policies. In order to change those designations, you need to execute a separate document called a “revocable living trust” or an “instant will” that is intended only for this purpose.

To create a legally valid financial power of attorney, you must properly complete and sign a fill-in-the-blanks form that’s just a few pages long. Some states have their own forms, but it’s not mandatory that you use them. Some banks and brokerage companies also have their own durable power of attorney forms. If you want your agent to have an easier time with these institutions, you may need to prepare two (or more) durable powers of attorney: your own form and forms provided by the institutions with which you do business.

A durable financial power of attorney stays in effect after you lose some or all of your mental capacity. That means it can be used to pay bills, buy property, invest money, and make other financial decisions on your behalf. To be durable, a power of attorney must have been signed by you while you were mentally competent and then acknowledged by a notary public before two witnesses. 

Also, it must state that the agent’s authority to handle your affairs will begin only if you lose the ability to handle your own affairs. If it doesn’t specify this, the document automatically has “springing” powers that take effect when your doctor diagnoses permanent mental incapacity.

If you’re unable to handle your own financial affairs and you want someone to step in, you have several options. One is to employ a fiduciary guardian. But if you don’t want to use a fiduciary or can’t afford one, you may create a durable power of attorney. Sometimes referred to as a written durable power or general durable power, this document gives someone else legal authority over your financial matters when you’re unable. 

You can decide exactly which powers and circumstances will apply, making it flexible enough for most people’s needs. And because naming an agent doesn’t require court approval, it’s relatively easy and inexpensive to create an effective power of attorney for yourself.

Third Parties

A question of any financial power of attorney is will a third party accept it? Generally, a third party is not required to accept a power of attorney. However, some state laws provide for penalties for a third party who refuses to accept a power of attorney using the state’s official form. One thing you can do to help assure its acceptance is contact anyone you think your agent may need to deal with and be sure they find your financial power of attorney acceptable.

Living Trust or Joint Property

If you and another person own a property jointly, the property will automatically transfer to the survivor upon your death. However, this will not allow the other person to sell or mortgage the property if you become incapacitated, but a financial power of attorney will.

While a living trust will typically allow the trustee to transact business for the trust if you become incapacitated, most people do not put all of their property into their trust. If you own any property that is not in the trust, you should consider a financial power of attorney for that property.

With a financial power of attorney you can avoid financial disaster in the event that you become incapacitated. You can also use a financial power of attorney to allow someone to transact business for you if you are out of town or otherwise unavailable.

It is important that you understand financial power of attorney and potential liabilities.

Who should you name as your power of attorney?

The person you name as your power of attorney needs to be someone who you trust and that will do the job for you. They also need to be willing to step up when necessary and be available when you need them.

When choosing a power of attorney, consider these tips:

• Choose someone who lives close by so they can easily help if needed. If that’s not possible, find a family member or friend with whom your relationship is strong enough for them to want to help out in an emergency situation like this.

• Look for someone outside of your immediate family because it will increase their ability to make decisions on behalf of your financial interests even if other members of the family are against them (for example, if another family member has control over certain assets).

Choose someone who is financially literate and able to make sound financial decisions. Consider whether they have any experience in handling money or managing investments. If not, find someone who does — it will help ensure that they’re making good decisions on your behalf.

How to choose someone to grant the power of attorney.

Before you can choose a person to grant power of attorney, you need to think about who will be best suited for the job.

• Make sure the person knows what they’re doing. This means that they understand how to manage your money and make good financial decisions on your behalf. If they have a lot of money of their own, they might not be able to help you as much as someone who has less savings or income.

• Choose someone who is trustworthy and responsible. If someone owes several credit cards in default, it might not be a good idea for them to manage your finances because finding out about this debt could cause stress for both parties involved (and maybe even lead to legal action).

• The person should also not be too old or infirm that he or she cannot handle day-to-day tasks such as paying bills on time!

Choose someone who lives close to you. This will make it easier for them to visit and check in on you, which will help ensure that they are not abusing their power of attorney.

What exactly can the power of attorney do?

The power of attorney can be used to make any kind of financial decision, from paying bills and buying real estate to investing and managing your retirement accounts. It can also be used to make medical decisions on your behalf, such as whether or not you want to undergo surgery. This includes deciding whether or not you want life-sustaining treatment in the event that you are unable to communicate with doctors yourself (such as being unconscious).

The same goes for personal matters — who should pick up your kids from school? Who should get them when they’re sick? What should happen if they get hurt while playing football? These are all examples of personal decisions that your power of attorney can help out with if you’re incapacitated or otherwise unavailable.

Business decisions are another area where the power of attorney may come into play: Should we sell our house? Should we relocate across town? How do we invest our money so that it grows more quickly than inflation rates but without taking too much risk? If something happens to me, who should take over running my company so that its employees aren’t left hanging without direction at a critical time in their lives’ trajectories?”

These are all examples of business decisions that your power of attorney can help out with if you’re incapacitated or otherwise unavailable. In this way, a power of attorney can make sure that your wishes are carried out even if something happens to you.

We hope this article has helped you understand the importance of having a financial power of attorney. If you’re ready to get started on creating one, we recommend speaking with an attorney who can help you through the process.