Power of Attorney for Finances
How Power of Attorney for Finances Works
A power of attorney for finances is a document that appoints a person -- or sometimes an institution such as a bank or trust company -- to handle someone's financial affairs. A power of attorney for finances can also be used to make life easier for your parents, for example, or loved ones even though they still make decisions and handle some financial matters themselves. Or it can be used to handle all their financial matters when they're incapable of doing so themselves. For information about how to set up a power of attorney for finances, see Power of Attorney for Finances: A Step-by-Step Guide.
First, however, it's a good idea for you and the person in your care to familiarize yourselves with the basics concerning how a power of attorney for finances works.
Why Would Someone Need a Power of Attorney?
A power of attorney for finances can be used to ease the burden of handling financial affairs. The document can allow the appointed person -- called an "agent" or "attorney-in-fact" -- to handle everyday financial matters such as rent, insurance, and doctors' bills, as well as major matters such as sale of assets or the management of a business, property, or investments. Many people also choose to limit the power of attorney, keeping major decisions for themselves as long as they're mentally competent.
A power of attorney can also serve to protect older adults if and when they become incapacitated. If someone doesn't have a power of attorney and becomes unable to handle financial affairs -- because of an illness, dementia, or stroke, for example -- a court might need to appoint an individual (known as a guardian or conservator) to act on the person's behalf. Such court proceedings are expensive and time-consuming, and the person in your care might not wind up with someone he would want to act on his behalf. A properly executed durable power of attorney avoids all this.
Is a Power of Attorney Always Necessary?
Under a few circumstances, a power of attorney isn't necessary. For example, if all of a person's assets and income are also in his spouse's name -- as in the case of a joint bank account, a deed, or a joint brokerage account -- a power of attorney might not be necessary.
Many people might also have a living trust that appoints a trusted person (such as an adult child, other relative, or family friend) to act as trustee, and in which they have placed all their assets and income. (Unlike a power of attorney, a revocable living trust avoids probate if the person dies.)
But even if spouses have joint accounts and property titles, or a living trust, a durable power of attorney is still a good idea. That's because there may be assets or income that were left out of the joint accounts or trust, or that came to one of the spouses later. A power of attorney can provide for the agent -- who can be the same person as the living trust's trustee -- to handle these matters whenever they arise.