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,d 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.

Financial power of attorney is an important part of estate planning that allows you, the principal, to give legal authority to one person, usually a spouse, adult child, or other close relative, to act for you on behalf of your estate.

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.

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.

The terms used for a POA can be confusing, but basically each POA has four characteristics that can contribute to the name of the POA; duration, area of authority, scope of authority, and when it begins.

  1. You can either give temporary or permanent (durable) authority to any specific agent to act on your behalf. In general, temporary POAs are used for specific actions. 
  2. 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 gives your agent authority to make medical decisions for you.
  3. The POA may limit your agent to specific (limited/special) powers, such as the sale of your home or paying your bills, or more general power over your assets and/or medical care
  • You can have the POA take effect immediately or only if a specific situation arises, such as you become incapacitated, you have an accident or you will not be present to handle a specific transaction. The latter is called a “springing” power of attorney.

In many cases you may be sharing decision making with your agent, especially if you are only physically unable to perform financial responsibilities.

Type

Area of Authority

Duration

Function

Special or Limited POA

Only specific tasks that you designate

When task is done, POA expires, or you become incompacitated (most states)

To act on your behalf for any indicated tasks, usually financial or estate related, while you are unable to perform them due to health or availability

Durable POA 

General, financial, care issues, or health care

Until revoked or your death

To act on your behalf for any indicated tasks if you become unable to for a prolonged period or permanently.

  • You can stipulate that the POA is “springing” and won’t go into effect until you are either mentally incompetent, physically disabled, or unconscious due to illness or injury or you are otherwise unable to act for yourself 
  • You may require that a doctor certifies your medical condition. You may even designate a specific doctor to determine your competency, or even require that two licensed physicians agree on your mental or physical state.

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.

  • 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.

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 get it explicitly authorized in their power of attorney document.

Common powers or actions include any or all of these.

Financial and legal matters that you can include.

  • Access to all of your accounts, such as brokerage accounts, bank accounts, 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 your care and the upkeep of your residence.

You may also specify that they can make medical decisions, but 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
  • It would not be appropriate for the broker to have your medical information any more than your medical professionals need to know you 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;
  • Perform any other fiduciary duties that are not in your best interest;
  • Voting in your place;
  • Any actions not permitted in that 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

Once you have made all these decisions, you can download Free Power Of Attorney Forms at any of these locations.

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.

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
    • This is the most difficult situation and will likely require a lawyer and other professionals to change your power of attorney. 
    • 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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