Financial Power of Attorney

At some point people with a chronic disease or terminal illness may become incapable of making or unwilling to make important decisions about their finances, estate, and/or business and may need a reliable person to take over long-term or permanently. This also can be useful for short-term situations, such as major surgery or a temporary impairment of mental status.

It is advisable to have a power of attorney even if most of your assets are in a revocable living trust that has named a back-up or successor trustee in case this happens.

Financial power of attorney is an important part of estate planning. It is a document that allows you, the principal, to give legal authority to at least one other person, usually a spouse, adult child, or other close relative, to act for you on behalf of your estate. Multiple agents can be chosen, but they must be able to work smoothly together to prevent major conflicts, including scheduling conflicts, that can delay decisions.

This person is typically referred to as your agent or “attorney-in-fact” and can act independently, even without consulting an attorney. Financial POA can either be durable or limited based on the purpose of the particular circumstances.

Power of attorney is granted using a legal document that must be notarized and should be presented to any party your agent is dealing with. The power is limited to the actions listed in the document, which may be further limited by state-specific laws. Many states have an official financial power of attorney form to assist with this.

While most parties accept a POA, it is not required by law. To increase the chance of a POA being accepted your attorney-in-fact needs to always bring a certified copy of the POA document with them along with a recognized form of identification and any other corroborating documents, such as a medical provider’s confirmation of disability.

You should regularly review and revise the power of attorney document when circumstances or preferences change, such as moving, changes in your estate that require different actions, a divorce, or death of an agent.

If you do not plan ahead the courts will become involved and you may be unable to manage your estate and have a say in who is chosen as guardians, conservators, or committees to manage your estate.

Types of Power of Attorney

Power of attorney (POA) is not a single entity but a flexible tool to accommodate a variety of situations. In many cases you may be sharing decision making with your agent, especially if you are only physically unable to perform financial responsibilities.

The terms used for a POA can be confusing since they are called types of POAs. Basically each POA has four characteristics that determine the purpose of the POA and contribute to the name of the POA; duration, area of authority, scope of authority, and when it begins.

  1. Duration — You can either give temporary (limited) or permanent (durable) authority to any specific agent to act on your behalf.

  2. Area of Authority — The POA can give the agent authority over one of two areas.
    1. Financial POA gives your agent authority to make important decisions about your finances and estate. Unless otherwise specified, financial POA is considered durable in some states,
    2. Healthcare POA/Proxy, discussed in another section, gives your agent authority to make medical decisions for you.
  3. Powers/Function — The POA may be limited or general.
    1. A Limited/Special POA restricts your agent to specific powers, such as the sale of your home or paying your bills.
    2. A General POA  gives broader rights to manage your assets.
  4. Time of Onset – You can have the POA take effect immediately or only if a specific situation arises.
    1. A Springing POA could take effect only if a specific situation arises, when you will not be present to handle a specific situation or transaction — for whatever reason, such as you become mentally incompetent, physically disabled, unconscious, or otherwise incapacitated due to illness or injury, or are otherwise unable to act for yourself.
    2. You may require that a healthcare provider certifies your medical condition. You may even designate a specific provider to determine your competency, or even require that two licensed physicians agree on your mental or physical state. Time of Onset — You can have the POA take effect immediately or only if a specific situation arises.

Traditionally Power of Attorney will be in effect until any of the following:

  • You specifically cancel or revoke it, see Changing or Revoking a Power of Attorney;
  • It reaches its expiration date, if it has one;
  • Your death;
  • A court invalidates it;
  • You divorce your spouse who is the agent;
  • The agent can no longer perform the outlined actions, for whatever reason; and/or
  • You become mentally competent or physically able to resume responsibility (special POA only and only in some states).

Choosing an Agent

The most important thing when choosing an attorney-in-fact or agent is to choose someone you trust, although they can’t be a minor or unable to function as your agent for whatever reason. Many states will have specific restrictions, such as a history of criminal behavior.

Integrity is key, so pick someone who will look out for your best interests, respect your wishes, and won’t abuse the powers granted to them. An agent is held legally responsible only for intentional misconduct, not for unintentional errors.

  • This protection makes it easier for people to accept the responsibilities of being an agent, but it may not be enough to prevent them from using the powers for their own gain.
  • To try and minimize this, if unable to review updates yourself, add a provision to have these updates reviewed by a designated third party.
  • If anyone suspects an agent of wrongdoing, report the actions to a law enforcement agency and consult a lawyer.

You will most likely choose a family member, such as your spouse or adult children. You may also choose a friend, another relative, organization, or a professional such as an attorney.

  • Although it is not crucial, it’s better to choose the most qualified person.
  • If you will be sharing decision making with your agent, choose someone you work well with and will defer to you when there is disagreement and you are still capable of responsible decisions.
  • It is important to choose an agent able to keep accurate records of all actions done on your behalf and to give you periodic updates to keep you informed.
  • Family and friends chosen as agents are not usually compensated for their time.

You may choose two or more co-agents, with similar or different responsibilities based on their strengths and weaknesses.

  • You can request that your agents act jointly in making decisions or have different powers and act separately.
  • When working jointly, co-agents can:
    • Ensure more sound decisions, acting as checks and balances against one another;
    • Potentially delay important transactions or signings of legal documents when schedules don’t line up; and/or
    • Make things difficult when agents disagree, so it is important to make plans for times when co-agents might disagree.
  • You may want to name a back-up, if the primary agent is unavailable, or a successor.
  • Your agent should receive a copy of the power of attorney document.

There are numerous considerations when naming your children as attorney-in-fact other than trust, willingness to look out for your best interests and respect your wishes, and not intentionally abusing the powers granted to them. Being chosen should not be a reward for loyalty, this may only disrupt family harmony, if you lack trust. Consider not naming a child as your agent if:

Choosing Powers to Assign Your Agent

Many of the powers you could give to your agent are regulated by and differ from state to state. If you have assets in different states, make sure that state allows agents to perform those actions.

Remember that, whatever actions you want your agent to do, they must be spelled out in detail in the document. Some may need to be authorized by the state. For example, some states allow your agent to make gifts legally, while in other states the agent needs to have it explicitly authorized in their power of attorney document.

Common powers or actions include any or all of these.

Financial and legal matters

  • Access to all of your accounts, such as brokerage accounts, bank accounts, annuities, 401(k)s/IRAs/403(b)s, and government benefits, credit card information, and user names/passwords to all sites
  • Making legal decisions about the estate and day-to-day finances, including:
    • Handling financial and business transactions, including investments;
    • Operating business interests;
    • Signing checks for depositing in the bank;
    • Signing checks or otherwise using your funds to pay bills, including everyday expenses and mortgage, tax, utility bills, insurance bills, phone, cable, and internet bills;
    • Cancelling any services and subscriptions you do not need
    • Buying, selling and managing real estate;
    • Borrowing money as needed to maintain the estate;
    • Filing tax returns; and/or
    • Employing professional help.
  • Creating or revising trusts for you, transferring your assets to existing trusts, buying life insurance, and settling claims.
  • Matters involving your beneficiaries.
  • Entering into contracts, dealing with real and personal property.
  • Making gifts on your behalf, using gift tax and estate tax guidelines or specific instructions that you specify.
  • Creditor and other claims on the estate, and lawsuits against the estate. 
  • Monitoring your state-of-mind in order to intervene before a financial crisis happens.
  • Protecting against scams or people preying on a person with a terminal illness.
  • Shared access to safety deposit boxes.

Seeing to the upkeep of your residence.

Specify that they can make medical decisions. However a separate Healthcare POA or Proxy is better for this.

A POA that includes both financial and healthcare provisions will have your personal medical and financial information, however if you would like to use professionals, it would not be appropriate for the broker to have your medical information any more than your medical professionals need to know your financial status.

Actions by the agent need to be signed in a specific way, usually either of:

  1. Your Name, by your agent under Power of Attorney; or
  2. Your Agent, attorney-in-fact for Your Name.

Actions that can’t be performed include:

  • Changing or revoking your will or creating one for you; however they can alter how your assets are distributed by changing the ownership (title) to them;
  • Changing or transferring Power of Attorney to another agent;
  • Commingling/combining their property or other assets with yours;
  • Performing any other fiduciary duties that are not in your best interest;
  • Voting in your place;
  • Any actions not permitted in your state;
  • Anything not specifically listed in the document; and
  • Any decisions after your death, unless they are also your executor and/or trustee.

Creating a Power of Attorney

Like a trust — see Guide to Understanding Trusts in the introduction to the Trusts section, when creating a power of attorney (POA) don’t worry about what type of POA you need, focus on the characteristics you want your POA to have. Once you have made all these decisions, you can see a professional or download Free Power Of Attorney Forms at any of these locations.

Some banks and other institutions prefer their own POA forms, which makes it easier for your agent to deal with them.

Fill in the form including the following.

  • Your full name and social security number (SSN).
  • The attorney-in-fact (your agent) full name including their address and telephone number (preferably their cell phone).
  • The State the Power of Attorney will be valid in.
  • The specific actions you want your agent to take.
  • The duration of the Power of Attorney, including events that will revoke it.
  • Your signature, which usually needs to be notarized, and in front of the number of witnesses required in your state.

If required in your state, your agent must read, affirm, and accept the power they have been given and how important this is for you.

If your agent be managing your real estate assets, some states require that the document must be placed on file in the local land records office.

Changing or Revoking a Power of Attorney

You may change or revoke power of attorney (POA) if necessary.

  • You can revoke your POA at any time, as long as you are mentally competent.
    • The revocation should be in writing. If the goal is to discontinue POD a Power of Attorney Revocation Form can be used. 
    • If the goal is to change the agent or terms of the POA you can either revoke your current one and fill out a new Power of Attorney form, or just make a new POA document, which will supersede your previous one. 
    • All POA documents should be signed by you in front of a notary public, and given to your agent and any third parties they have been in contact with (e.g. your bank).
  • If you recorded your power of attorney at your county recorder’s office, you should record the revocation in the same place.
  • You should inform all interested parties such as your spouse, other family, lawyer, and accountant and provide them with copies of the documents.
  • Power of Attorney Revocation Forms – eforms, lawdepot

These are some common reasons for changing agents or powers or revoking the POA. 

  • You no longer need one, such as your health improves to the point you can assume responsibility.
  • Your relationship with your agent has changed, such as a divorce or you have less trust in them due to other changes.
  • The agent dies, although you could avoid having to do this by naming a back-up or alternate agent in the original document.
  • You want to alter the powers granted to the agent due to changes in your estate and/or add another agent to divide responsibilities.
  • Your current agent is no longer competent or willing to fulfill their duties.

Your child may be able to change your power of attorney in the few situations that it may be needed. It may be simple or difficult, time-consuming, and expensive.

  1. You are competent and willing – This is the simplest situation and you can easily revoke your current power of attorney and make a new document one as outlined above.
  2. You are competent but unwilling  – This may be a difficult situation, but the only option may be your children convincing you. If they can’t, but your attorney and accountant agree with them, they may be able to if they can provide concrete reasons why.
  3. You are incompetent and the current power of attorney agent is willingIf the current power of attorney is agreeable, they can “sign-over” their rights and your children can create a new Power of Attorney document for you.
  4. You are incompetent and current Power of Attorney agent is unwilling
    1. This is the most difficult situation and will likely require a lawyer and other professionals to change your power of attorney. 
    2. It is usually expensive and requires a lot of time, some of it in court. This can be stressful on family relationships.

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