Financial Powers of Attorney
By: AARP Legal Services Network Source: AARP.org Date Posted:
What is a Power of Attorney?
A power of attorney is a written document in which you (called the principal) appoint someone else (called the agent or attorney-in-fact) to act for you. Your agent can do any legal act you ask your agent to do.
Why is a Power of Attorney Important?
Everyone should think about having a power of attorney. Having one can be more important to your personal well-being than a will. It allows you to pick someone you trust to handle your affairs if you cannot do so yourself. It gives you peace of mind, knowing that in an emergency someone you choose will have the authority to act for you. If you don't have a power of attorney and you are suddenly incapacitated, your family may have to go through an expensive and time-consuming court action to appoint a guardian or conservator.
Are There Different Types of Powers of Attorney?
Yes. Powers of attorney can differ depending on when you want the powers to begin and end, and how much responsibility you want to give to your agent.
Time
A conventional power of attorney begins when you sign it and continues until you become mentally incapacitated.
A durable power of attorney also begins when you sign it, but it stays in effect for your lifetime, unless you cancel it. You must put specific words in the document stating that you want your agent's power to stay in effect even if you become incapacitated. If you want this feature, it's very important that you have these words in your document.
A springing power of attorney begins only when a specific event happens, such as when you become incapacitated. Your attorney must carefully draft a springing power of attorney to avoid any difficulty in determining exactly when the "springing" event has happened.
All powers of attorney come to an end at your death. Your agent will have no power to make any decisions after you die.
Responsibility
You can select the responsibilities, or powers, you want your agent to have. You can authorize your agent to do one thing, such as sell your car. Or you can give your agent the authority to do any legal act you could do yourself. You can give a wide range of powers, such as having access to bank accounts, selling stocks, and managing real estate. You may want your agent to sign your income tax return, apply for benefits, and make gifts. You should design your power of attorney to fit your anticipated needs.
What Type of Power of Attorney is Best?
In most cases, durable power of attorney is best. Conventional powers of attorney become useless just when you may need them the most--when you are unable to make decisions on your own. Springing powers of attorney can create problems in determining when they become effective.
The best way to draft a power of attorney is to state the broadest range of powers you feel comfortable giving to your agent. This will allow your agent to take care of all matters, even those you cannot foresee now.
Will My Agent Be Able to do My Banking?
If you want your agent to have access to your bank account, be certain to get your bank's authorization form and a signature card for your agent. Usually a bank uses its own form to give your agent access to a particular account. If you don't contact the bank before you become incapacitated, the bank may not want to honor checks and withdrawals your agent signs. It doesn't give your agent broader powers. Giving your agent the authority to have access to your bank account is not the same thing as making a friend or relative a joint owner of the account.
Are There Any Risks Associated with Power of Attorney?
The risks of appointing an agent are small. The most important way to reduce any risk is to carefully choose your agent. Select someone you trust completely. The power of attorney doesn't mean that your agent owns any of your property. It allows your agent to make financial decisions when you can't. You can withdraw a power of attorney whenever you want as long as you are competent. Appointing someone as agent doesn't mean you give up your right to manage your own affairs.
Who Should I Choose as My Agent?
No one can tell you whom to choose as your agent. The person you choose needs to be someone you trust, as well as someone who can do the job. Many people select their spouse as their first choice, and a child or other relative as a substitute. But, if your spouse is ill, inexperienced in financial matters, or for some other reason wouldn't be able to handle the responsibilities, pick someone else. Pick the one you trust the most. Between two equally qualified persons, the one who lives closest to you is generally the best choice.
Can I Name My Two Children as Co-Agents?
The law permits you to appoint co-agents. However, it may not be a good idea. To make decisions, both must agree. If they disagree, they may have to go to court. This is really expensive, time-consuming and defeats the major reason for having a power of attorney. If you have two equally qualified persons to choose between, you may want to name one as your agent and the other as a substitute to step in if your first choice cannot serve. You could also appoint one to make financial decisions and the other to make health care decisions. This is your choice. Don't be talked into selecting anyone other than the person you want.
I Already Have a Will. Can't My Executor Handle My Affairs?
No! Your will determines how your property will be distributed after you die. Your executor has no authority to act before your death. Your power of attorney deals with how to manage your property during your life. Your agent has no authority to act after you die.
I Own Everything Jointly with My Spouse (or Adult Child). Why do I Need a Durable Power of Attorney?
Many people think their spouses or other relatives are automatically authorized to make decisions for them if they become incapacitated. A joint account-holder on certain types of joint bank accounts has access to joint funds. Close relatives may be allowed to make ordinary medical decisions for you if you can't make them yourself. However, this is not enough.
If you become incapacitated, a spouse or joint owner may not have authority to handle certain transactions, especially those involving real estate and stocks (even if they are jointly held). You need a financial power of attorney so someone has clear authority to act for you in all situations.
Can I Still Manage My Own Affairs If I Sign a Power of Attorney?
Even if you sign a power of attorney, you can still manage your own affairs. You are not giving up anything. Instead, you are taking steps today so your agent will be able to act when and how you have directed, when it becomes necessary.
Can I Cancel a Power of Attorney After I Sign It?
Yes. You can cancel, or revoke, a power of attorney at any time by tearing it up, signing a new one, or writing that you want to cancel it. You don't have to give any reason. If you do cancel, it's a good idea to let your agent and anyone your agent has been dealing with know that you have canceled the agent's authority.
Can a bank or other institution refuse to honor a valid power of attorney?
State laws vary as to whether they penalize a third party for refusing to honor a power of attorney document which appears to be valid on its face. It would be necessary to prove that a third party honoring the document either knew or should have known that the document was a fraud or had been revoked in order to hold the third party liable for any loss to the principal. Whether a principal could sue for damage resulting from a failure of a third party to honor a power of attorney is uncertain.
The best answer to the question is to avoid the problem by being prepared. Principals should be certain to contact any financial institution where they have accounts, safe deposit boxes, securities and the like, as soon as the power of attorney is executed. Copies should be provided and any form that any of the institutions require of the principal or attorney-in-fact, such as authorizations or signature cards, should be executed. This generally avoids any difficulty.
It is also wise to have a power of attorney notarized even if it is unlikely that it will ever require recording. The notary seal will provide extra authentication for any wary third parties.
If I give a power of attorney to another, do I give up the right to manage my own affairs?
No. As long as a principal remains legally competent, he or she retains full control over his or her affairs. The principal may allow the attorney-in-fact to act or not at the sole discretion of the principal. A principal may cancel the power of attorney at any time without requirement of a reason.
Need more information?
If you have any other questions, call your AARP Legal Services Network (LSN) attorney. For a complete list of LSN attorneys, call 800-424-3410 or visit www.aarp.org/lsn. To locate other local support resources for older persons, contact the Eldercare Locator at 800-677-1116 or visit www.eldercare.gov.
Other Self-Help Guides
You can request copies of these Self-Help Guides from your Legal Services Network attorney.
Consumer:
A Credit Card is a Loan Card
A Mistake in Your Bill
Before You Buy Anything, Stop and Think
Buying a Home
Having Problems with a Loan?
Home Modification
How a Deal with Mail Order Problems
Selling a Home
What to do When You Can't Pay Debts
You Can Get Out of Home Improvement Contracts-Here's How to Do It
Estates:
Financial Powers of Attorney
Personal Bank Accounts, What's Best for You?
Support for Widows and Widowers
What is a Will?
Family:
Financial Exploitation
The Older Couple and Divorce
Health Care:
Health Insurance Portability & Accountability Act of 1996 (Group Plans)
Hiring a Home Health Care Worker
Is a Life Care Contract for You?
Paying for Long-term Nursing Home Care
Landlord and Tenant:
Renters, Know Your Security Deposit Facts
Note: While we strive to keep this legal information up to date, the law is constantly changing, and we do not guarantee the accuracy of any information contained herein. If you should find any inaccuracies, errors or omissions in this document, please e-mail suggested changes to cjanicko@aarp.org or mpotter@aarp.org.
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