A power of attorney (POA) is a document that gives a person (the "attorney in fact") legal power to make financial decisions for someone else (the "principal") while they are alive.
When is a power of attorney for finances activated or revoked?
This depends on how the document was set up. Regardless of the financial decision-making responsibilities the individual will assume, their power can be activated or revoked using these three general types of power of attorney limitations:
- Durable POA – This type of document goes into effect when signed and grants power to make financial decisions for the individual. It remains effective if the principal becomes incapacitated, or until they pass away. The principal can revoke this power at any time, provided they are still of sound mind.
- Non-durable (or Conventional) POA – This document is effective for a specific period of time or for a given event or circumstance. Non-durable POAs are generally used for financial transactions when the principal cannot be present (they may be outside of the country), then cease upon completion of that transaction. If the principal becomes incapacitated at any point, this power is revoked.
- Springing POA – This document goes into effect at a future point after a specific event, such as when an individual becomes incapacitated. This event triggers, or “springs”, the power of attorney into effect. This power can be non-durable or durable.
Any power of attorney documents in effect will be revoked upon the death of the individual (principal).
Who needs a power of attorney for finances?
This is largely a personal decision, but one that individuals nearing retirement, the elderly, frail, or seriously ill should strongly consider. Younger, proactive planners may wish to complete this document in case of a medical emergency. Here are some scenarios in which different types of POA for finance documents are commonly used:
- You do not wish to manage your finances anymore (for any reason
),and want to appoint another trusted individual to do this for you, effective immediately (a durable POA).
- You need to temporarily appoint someone to make a financial/real estate transaction in your absence (a non-durable POA).
- You are worried you may lose your decision-making capabilities in the future due to an illness or accident and want to appoint someone to take over your finances if that happens (a springing POA).
How should I choose someone to be my power of attorney for finances?
You can choose a family member or friend to fill this role. It is important to consider the following characteristics in naming the right person on a power of attorney for finances document.
- Trustworthy: you trust this person with your life savings
- Exhibits good judgment in their own finances and interpersonal relationships
- Detail oriented: makes sure things are done properly
- Keeps long-term commitments and is available to take on this role
- Thoughtful: they will keep your best interest at heart and consider the needs of any dependents when making decisions with your finances
- Knowledgeable about business matters (especially if you own a business)
- Collaborative: able to work closely with lawyers and members of the family
Once you identify the person(s) you want to choose for this role, make sure you discuss your thoughts with them. They need to be willing to and able to follow through on this responsibility before you complete the legal paperwork.
How do I complete a legal power of attorney for finances
You have a couple of options:
1. You can consult with a lawyer to create this important form. This may be especially helpful if you are setting up a more complicated non-durable or springing POA document.
2. If you want to create the document yourself, you can find state-specific power of attorney forms on the websites listed in the Legal Services section of the Cake Marketplace.
However you create your POA, the form must be signed by both the principal and the attorney-in-fact. The signing of the form must be witnessed and notarized.
What do I do with my completed power of attorney forms?
After you have completed your legal power of attorney form, you should keep the original in a safe place, and give an official copy to your chosen attorney-in-fact and your lawyer, if you have one.
If you are using Cake to do your end-of-life planning, upload a digital copy to your account and be sure to share your profile with your chosen attorney-in-fact. This will ensure they can locate a copy of your document whenever it may be needed. Not using Cake yet? Create your free Cake account to start planning!
Who will make financial decisions after my death?
After death, a will and/or trust documents are used to name the individual(s) that you want to handle the financial affairs of your estate. This person is called an executor. If no such documents exist, an executor will be chosen among any individuals that may petition for control of your estate in probate court. If no one petitions for control of your estate, the state may take control to liquidate your assets. A will and/or trust can help your loved ones avoid drawn-out proceedings in probate court.