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Financial Power of Attorney

Article Highlights

  • Defining Power of Attorney (POA)
  • Choosing the right POA
  • Finding an agent

En español | By creating a power of attorney, your loved one can designate someone to assist with finances now and/or act on her behalf should she become incapacitated. A power of attorney can give her the peace of mind of knowing that someone she trusts will have the authority to make financial decisions for her when she’s no longer capable.

If your loved one were to become incapacitated without a power of attorney, her family might have to go through costly and time-consuming court proceedings to appoint a guardian or conservator to make decisions for her.

What Is a Power of Attorney (POA)?
A power of attorney is a written document in which the "principal" (your loved one, for example) appoints someone else, referred to as an "agent" or "attorney-in-fact," to act for her under certain circumstances.

The principal decides how much responsibility she wants the agent to have. She can give her agent a wide range of powers — the ability to access bank accounts, sign income tax returns, sell stocks and manage real estate, for instance — or she can limit that person’s authority to a single transaction. Your loved one should design her power of attorney to fit her anticipated needs.

The principal also decides when the agent’s powers begin and when they end. Depending on the circumstances, she may decide to go with a conventional power of attorney, a springing power of attorney or a durable power of attorney.

Types of POAs
A conventional power of attorney
begins when the principal signs it and ends when that person becomes mentally incapacitated.

A springing power of attorney begins only when a specified event occurs, such as when the principal becomes incapacitated. A springing power of attorney must be carefully drafted to prevent any difficulty in determining exactly when the "springing" event has happened.

A durable power of attorney begins when it’s signed, and it remains in effect throughout the principal’s lifetime, unless she cancels it. This is usually the best choice because it remains in effect even after the principal becomes incapacitated. And unlike with a springing power of attorney, no one has to worry about determining when it becomes effective.

Your loved one can continue to manage her finances even after signing a power of attorney. But if she becomes incapacitated, then the agent will step in.

All powers of attorney expire at the time of the principal’s death. The agent will no longer have the authority to make decisions after that time.

Choosing an Agent
Your loved one should choose someone she trusts completely to manage her finances, someone who can handle the responsibility. The agent might be a spouse, an adult child, a sibling or a close friend. Your loved one also should name someone as a substitute to serve if her first choice cannot.

Encourage her to meet with an attorney to make sure that the document meets state requirements. Once your loved one has signed a power of attorney, she should provide a copy to any financial institution with which she has an account.

If she wants her agent to handle her banking, then she should get an authorization form and signature card from the bank. Giving her agent access to the bank account is not the same as making the agent a joint owner of the account. The agent can withdraw funds for the principal’s benefit only, and money left in the account will be part of the principal’s estate.

Remember that the agent doesn’t actually own any of the principal’s property. He only has the authority to make decisions regarding that property when the principal cannot.

Your loved one can cancel, or revoke, a power of attorney at any time by tearing it up, signing a new one or writing that she wants to cancel it. If she does revoke the power of attorney, she should notify the agent.

If your loved one asks you to be her agent, sit down with her and learn about her current financial situation: bank accounts, loans, credit card accounts, investments, insurance policies, etc.

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