A financial power of attorney is a legal designation that allows you to name someone else to take care of financial affairs on your behalf, usually in the event that you are incapacitated due to injury or illness and cannot manage your affairs on your own. The person you name should be someone who is trustworthy and who will make decisions in your best interests.
There are several things you should know before you designate a financial power of attorney.
1. Types of financial power of attorney
When you’re creating a power of attorney (POA), you may hear about durable, non-durable and springing POAs. A durable POA covers incapacitation. A non-durable POA becomes void if you lose your ability to make decisions. A springing POA only takes effect upon a specific event, such as your incapacitation. While these might not seem like major distinctions, they can make a big impact concerning when the person you name can act on your behalf.
2. Scope and limitations
You can choose to grant an agent broad or limited authority in managing their financial affairs. This can include paying bills, managing investments, filing taxes or selling property. It is essential for you to specify the powers explicitly in the POA document. The person you name has a fiduciary duty to act in your best interest and is legally bound to make decisions that align with your intentions and wishes.
3. Termination and revocation
A financial POA can be terminated under certain conditions, such as your death, revocation by you, expiration of a predetermined time period or the occurrence of a specified event. You can revoke a POA at any time, provided you are mentally competent. When you pass away, financial duties will pass to your estate administrator or personal representative.
Ideally, you’ll be able to discuss your wishes for all financial matters with the person you name. This effort can provide them with valuable direction if they have to take care of your affairs because you’re unable to do so. This is only one small component of a comprehensive estate plan, so be sure to work with an experienced legal professional who can help you to determine how to convey these and additional wishes in a legally enforceable manner.