Creating a financial power of attorney is a simple but an important estate planning tool
If you become incapacitated and have not taken the proper steps beforehand, your financial affairs may be thrown into chaos. One of the easiest, inexpensive and reliable ways to protect your affairs in a case like this is to arrange for another person to manage your finances through the execution of a durable financial power of attorney. If you don’t take this step, you could be placing your affairs and your estate at the mercy of the courts. You can either decide who will assist you in controlling your finances, or your spouse or other relatives will have to ask the courts for permission to gain control over your financial affairs.
Due to mental disease or otherwise, there may be times when a person cannot think or act for themselves. When such an event occurs, the person’s authority may still be required to make life decisions, such as selling property, make financial decisions, or even make medical and health decisions. In such cases, it is useful to have a power of attorney (POA).
A POA allows another person—the agent—to make these important decisions on the other’s behalf. This agent generally acts as a fiduciary, but since the agent is likely making very important decisions, it is important to choose somebody who you trust to have that POA. Never try to give the authority to somebody you have only known through the Internet without consulting an attorney!
Most people decide to create POA documents as they are aging or if they foresee a possibility of incapacitation at some point—for example, before a person joins the military or law enforcement. However, since life is very fragile and unpredictable, nothing prevents you from creating one today.
General v. Limited
A general POA gives the broadest authority to the agent. General POAs are usually created alongside a person’s will and trusts, if any.
A limited—or special—POA is one that is created for a very narrow or specific purpose and can be very temporary in nature. An example where you might need one is if you and your spouse are buying a house, but you are out of the state or the country during the closing. A limited POA allows your spouse to attend the closing and execute the necessary documents on your behalf.
Healthcare & Financial
A POA can also focus on specific subject matters, such as medical care. We have all heard of horrific situations in which legal battles ensue over what to do when a loved one is in a long-term coma and exhibits no signs of brain activity. Such battles can tear apart families. A way to tackle that is to detail in a POA what types of treatments you do and do not want.
Financial POAs also allow your agent to make financial decisions on your behalf. Such decisions can range from paying bills to investing money. These can be common between an elderly single parent and his or her child.
- Your spouse does not automatically get POA authority
- While advised, creating a will is not the same as creating a POA
- You do not have to be an elderly individual to create a POA
- Like all other estate documents, you should revisit your POA regularly for any updates
You cannot create a POA if you are already mentally incapacitated