Set Up Power of Attorney for Finances

5 Steps to Set Up Power of Attorney for Finances

By , Caring.com Expert
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Through a power of attorney, an individual appoints a person, usually a close relative, either to help him manage his affairs, or to handle all his affairs if he's unable to do it himself. When setting up a power of attorney for finances, here's what you and the person in your care should consider:

  1. Determine whether he needs a power of attorney.

    A power of attorney can be used to help someone manage daily financial affairs, to take care of specific financial transactions, to handle financial affairs while he's out of state or out of the country, or to temporarily handle matters while he's undergoing medical treatment. Perhaps more important is the fact that, whether or not the person presently needs help managing his financial affairs, a "durable" power of attorney provides someone to act on his behalf if he becomes incapacitated. Without a durable power of attorney or another financial arrangement, a court may need to appoint someone to act for him if he becomes incapacitated. This court procedure is a cumbersome, time-consuming, and expensive ongoing process, and he may not have input as to who the court will appoint.

    If both a husband and wife are living, each should execute a separate durable power of attorney. For an explanation of how different types of power of attorney address different needs, see What Is Power of Attorney for Finances?

    In some situations, it may not be necessary to prepare a durable power of attorney. Rather, another form of authority, such as a revocable living trust, can accomplish a similar result, giving another person (the trustee) authority to act. People with large estates may decide that a revocable living trust, with its important tax advantages, may be adequate for their needs. However, for the trust to effectively replace a durable power of attorney, all of their present and future income and assets must be part of the trust. Or they may choose to have both a revocable living trust and a power of attorney for finances.

  2. Determine who will serve as the agent and discuss the job with that person.

    A power-of-attorney agent should not only be someone the person trusts and feels comfortable with but also someone with enough financial savvy to handle his financial affairs. If his finances are complex, the agent should be financially sophisticated. Also, the agent should be someone who has the time to attend to necessary financial duties and is likely to remain committed to doing so if the person becomes incapacitated and remains so for a long time. It's also a good idea if the agent lives nearby, within reasonable driving distance of the person and his property.

    Regardless who becomes the agent, it's also important to consider carefully who is to be the alternate or successor agent. This is the person who would take over the job of agent if the first person named became unwilling or for any reason unable to do the job.

    After the older adult has decided who the agent and successor agents should be, it's time to discuss this responsibility individually with each person he has chosen. He should make it clear to each person what handling the financial affairs would entail, and the person should give a clear commitment to take on the job if and when it becomes necessary.

  3. Use forms as a starting point for drafting a power-of-attorney document, and consult an attorney.

    Even though it's best to consult with an attorney before a power of attorney document is finalized, it's wise to look at power-of-attorney forms and discuss their terms beforehand. This will allow you and the person you're caring for to see different possibilities and discuss them calmly before sitting in the lawyer's office with the hourly billing meter running.

    Many forms that can be used as starting points are available online, such as one from the Internal Revenue Service. Your can also download state-specific samples for the state the person lives in by conducting an online search using the phrase power of attorney for finances forms along with the name of the state. There are also commercial legal form sites that can provide state-specific forms.

    More than a few financial institutions, such as banks and brokerage firms, have -- and even prefer -- their own power-of-attorney forms. These can be used as models. And if the person in your care has regular transactions with such an institution, he may want to execute one of these specific forms in order to smooth the way for the agent. In most states, however, a financial institution is legally required to accept any power-of-attorney form officially provided by or accepted in the state.

    Before finalizing a power-of-attorney document, it's a good idea for to consult an attorney. You can check with the attorney about what form of authority best suits your parent or relative's needs and what limits, if any, should be placed on the power of attorney. He can also describe the chosen agent to the attorney, and even have the agent meet the attorney, to get the attorney's opinion about his choice of agent.

    If he doesn't already have or know of an attorney who prepares powers of attorney, he can seek a referral from a different lawyer he knows, or from trusted friends or associates. He can also contact the local or state bar association where he lives; these groups have information about local lawyers' specialties and can make a referral to a lawyer near his home.

  4. Put the power-of-attorney document in writing, store it safely, and give it to the right people.

    A power of attorney must be in writing, regardless of what form is used. No matter how often an older adult has told people what he wants done and by whom, a power of attorney must be reduced to a written document and properly signed, witnessed, and notarized. However, the document usually doesn't need to be filed with the federal or state government unless it's related to taxes. If the power of attorney is to be used in connection with a piece of real estate, some states require that the document be filed at the local county recorder's office.

    The person in your care should keep the original power of attorney document in a safe place and give copies to the agent and successor agents (along with information about the location of the original) and to family members and appropriate institutions such as his bank, brokerage firm, lawyer, and accountant. The document can include language stating that a copy can be accepted as the original. In some states, an attorney or a notary public needs to certify that a copy is a valid representation of the original.

  5. Continue to assess the power of attorney.

    As a person ages or as his financial, personal, or medical situation changes, he should evaluate whether the existing power of attorney continues to be appropriate, and whether the agent he originally chose is still the right person for the job. He can change or revoke the document, including changing the agent, at any time. (You or he can go to lawdepot.com to find a sample document that revokes a power of attorney.) If he changes anything, it's always a good idea to prepare an entirely new document, rather than simply marking up the existing one.