When starting estate planning, it can feel like there are forms for every decision you have to make.
Jump ahead to these sections:
- Financial Power of Attorney Definition
- Duties of a Financial Power of Attorney
- How to Get Durable Financial Power of Attorney for a Loved One
- How to Assign a Durable Financial Power of Attorney for Yourself
Even with all the resources available, it can be overwhelming sometimes. But in general, all the forms and resources you have at your disposal are designed to accomplish two things:
- To enable you to make your own decisions regarding any and all issues that are likely to affect you as you approach the end of life and
- To help you to effectively manage your financial affairs
For most people, taking the time to set up autonomous decision-making is a meaningful and important part of preparing for death. As mentioned above, and what most people want to make decisions about are their health and their finances. This is why the Durable Financial Power of Attorney is one of the most important resources and decisions to make in your estate planning. It is the legal document that addresses the combination of your decision-making capacity and the management of your financial affairs.
Confused about why you should have one and the differences between other powers of attorney? This article will help you understand what a durable financial power of attorney is and why you should consider having one.
Financial Power of Attorney Definition
A financial power of attorney is simply a legal document in which you (the “principal”) authorize someone else (an “agent” or “attorney-in-fact”) to make financial decisions for you or to act for you in financial matters. A power of appointment can be effective immediately—even while you have full capacity to make your own financial decisions.
This is typically used for someone who simply cannot be present to personally participate in a financial transaction, like withdrawing money from a bank or closing on a real estate purchase. Another option is to have the financial power of attorney become effective only when a medical professional determines you to be incapacitated.
This is known as a “springing” power of attorney because the authority to act for your “springs” into effect upon the happening of a particular event—in this case, your incapacity.
So, think of a “durable” power of attorney as one that can be effective immediately and that lasts for the duration of your incapacity. A power of attorney terminates when you are no longer incapacitated or when you die. Therefore, if you want the agent of your power of attorney to continue to have financial authority over your estate after you die, you must also name your agent as the executor of your estate. There are several ways in which a power of attorney may end or terminate, in legal terms:
- You die.
- You revoke the power of attorney. Of course, you can only revoke it when you have the capacity to do so.
- Your agent is unable to serve and you have not appointed a successor agent.
- A court terminates or invalidates it.
- You have appointed a spouse as your agent of your power of attorney and you subsequently get divorced.
- Note: this rule is applicable only in some states. You should confer with your attorney to determine if this rule applies in your state.
If you want an agent to make financial decisions for you when you are alive and have no capacity to do so, you must create the power of attorney now, while you are able. If you wait until you need one (i.e., when you are incapacitated), it will be too late for you to be able to legally authorize someone to do it.
If that happens, your family and loved ones will have to ask the court to grant someone the power to assume the role of a guardian for you. This is called a “guardianship” or “conservatorship.”
Overall, it is far easier for you to make this decision for yourself now. A guardianship or conservatorship could present contested issues and a long delay in the process before an agent is authorized to act on your behalf. Unless it includes express terms to the contrary, a durable power of attorney can be effective the moment it is signed.
Duties of a Financial Power of Attorney
Unless you indicate otherwise, the responsibilities of an agent of a durable financial power of attorney are limited to financial matters. Your financial agent cannot make medical or health care decisions for you.
Although you may authorize your agent to handle any specific matters listed by you, there are some basic duties that most durable power of attorneys need to fulfill. These may include:
- Paying your bills and everyday expenses
- Paying your mortgage
- Buying, selling or managing your real estate
- Paying your taxes
- Withdrawing money from the bank
- Investing and managing any stocks, bonds, or investment accounts
- Handling insurance transactions
- Operating your business
- Collecting government benefits on your behalf
- Managing or collecting pension funds or retirement benefits
- Buying and selling personal property
- Retaining someone to represent you in litigation
- Paying medical bills (assuming you do not have a medical power of attorney)
These are powers generally authorized under a “general” power of attorney. However, you are also able to limit the terms of your power of appointment to very specific duties, such as participating in a single transaction or to access a single bank account. A power of attorney with this type of limitation is referred to as a “limited” or “special” power of attorney.
For any power of attorney, by assuming the role of “attorney-in-fact,” your agent assumes a fiduciary role and takes on legal obligations that are required of most fiduciaries. These may include the duty to:
- Act in your best interest
- Maintain appropriate financial records
- Maintain impartiality and avoid conflicts of interest
- Avoid the mixing, or commingling, of assets
Keep in mind that a power of attorney is a private agreement between the principal and the agent. There is no court oversight to ensure that the agent is not overstepping their authority. A court would only become involved upon a contest over the validity of the power of attorney or upon a breach of the agent’s duties.
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How to Get Durable Financial Power of Attorney for a Loved One
In order to get a durable financial power of attorney for a loved one, you must have the principal, in this case, your loved one, execute a power of attorney while they have the capacity to do so freely. There is no single form that is required for every power of attorney, with the exception of some banks that may require you to use their forms.
Most states offer online services that provide power of attorney forms that can be customized for the type of power of attorney that the principal wants. The forms are generally very easy to fill out, and, usually, the form must be signed by the principal, witnesses, and a notary public. Some states may also require that the agent sign the power of attorney.
If you list real estate transactions as part of your agent’s duty, you may have to file the power of attorney with the appropriate office of records.
Filling out the paperwork is often easier than convincing your loved one that they need a power of attorney. This can be a very delicate conversation to have, especially for someone who may not be experiencing any signs or symptoms of incapacity. They may resist the idea and see it as “giving up control,” when in fact it may be a real concern for them at this stage.
It is of vital importance that you do not demand that your loved one sign a power of attorney or appear to coerce your loved one in any way. Any question of legitimacy could lead to issues of validity or outright refusal. Introduce the conversation and concept gently and let your loved one mull it over if they have not considered it previously.
If you can present the idea for what it actually is—a way for the principal to exercise autonomous decision-making now, rather than having that power delegated to someone else later without their input—they may be more inclined to want to exercise that control now.
It may be useful for you to execute your power of attorney along with your loved one, so they see that this is something you deem important enough to do for yourself. It is most important, however, that your loved one feels that they made this decision for themselves.
How to Assign a Durable Financial Power of Attorney for Yourself
To assign a durable power of attorney for yourself, you should adhere to the same rules and instructions mentioned above. In case your power of attorney becomes necessary and effective at some point in the near future, it may make the process easier if you take the initiative now to speak to any institutions that handle your finances or other business.
If you introduce your agent now and alert these institutions to the designation of power of attorney, they may be more likely to accept the power of attorney when it is presented.
When you do create a power of attorney, you should regularly review it to assess whether you continue to need it in its existing form. If your circumstances have changed, you’ll likely want to amend it, revoke it to designate a new agent, or create a new power of attorney.
Exercise Your Decision-Making Authority with A Durable Financial Power of Attorney
It may seem counterintuitive to authorize someone to make financial decisions for you when you are currently capable of making those decisions for yourself.
But as mentioned above, when a power of attorney is executed in accordance with your wishes, this document can be incredibly useful. In fact, it may be one of the most important and useful tools in building a comprehensive and effective financial plan for the future.