Power of Attorney for Finances: What to Know
8 Things to Know About Power of Attorney for Finances
A power of attorney for finances can be a valuable tool, especially for families caring for older adults. You can use it to help them manage specific transactions, to assist them for just a short time, or to regularly manage their everyday affairs. And what's called a durable power of attorney for finances sets up a simple, relatively inexpensive way to handle their finances if they ever become incapacitated. If you and they are considering a power of attorney for finances, here are some things to keep in mind.
Would a power of attorney help older family members now with their everyday finances?
Even if they're still competent to make major financial decisions, one or more of them may be finding it difficult to manage all their everyday money matters. Maybe your father's eyesight isn't sharp enough to confidently read financial documents or your mother's hearing isn't good enough to negotiate telephone transactions. Maybe it's not easy for them to get around, make trips to the bank, or oversee property.
In these situations, they might get some relief by executing a general power of attorney for finances. This document would give someone -- you or another family member -- the authority to act on your their behalf in any financial transaction but would not take away their authority to act on their own whenever they choose.
Do your family members need a limited power of attorney to help with specific transactions?
They might still be able to handle everyday money matters without help. Even so, they might not be comfortable handling more complicated transactions that come up from time to time. These might include buying a car, making an insurance claim, buying or selling a home, or arranging long-term care.
For any particular situation in which they feel unsure of themselves, they could execute what's called a limited power of attorney for finances. This would authorize someone -- called an agent or attorney-in-fact -- to act on their behalf only for the specific transaction listed in the document. The power of attorney would end once the transaction was complete. Sometimes an ending date is placed on the appointment of the agent as an e xtra limitation.
Would a temporary power of attorney for finances help protect your older family members while traveling?
It might. They may regularly spend time away from home, perhaps even out of the country. Or they may be planning a trip at a time when they know a specific financial matter is likely to need attention. If so, they could execute a power of attorney for finances -- either a general power of attorney or one limited to specific transactions -- to operate only during the time they're away. The power of attorney would expire on the date they're to return home, as specified in the document. As with any other type of power of attorney, they could revoke it -- meaning it would no longer be effective -- earlier, as long as they're still mentally competent.
Should older family members consider a durable power of attorney for finances in case they become incapacitated?
One of the most difficult and complicated situations any family can face is the sudden and permanent incapacitation of someone close to them. The problems are worse if that person hasn't prepared a document that authorizes someone to act on his behalf regarding financial matters that may continue needing attention for as long as he lives. Although it may make him nervous to give anyone else power over his finances, without such a document, your family may be faced with the complicated and expensive process of having a conservator or guardian court-appointed for him.
Fortunately, there's a simple document that makes this court process unnecessary. It's called a durable power of attorney for finances -- the word durable means that it remains in effect after the person is incapacitated. Although it's a good idea to have a lawyer review the document, preparing it is a relatively simple and inexpensive matter that can save untold distress. Every older adult should consider having a durable power of attorney for finances. In fact, it's never too early to have one in place -- no one expects to have a stroke or accident, but when it happens the patient's family may need financial authority.
Who should serve as the agent under a durable power of attorney for finances?
It's important to pick the right person to act as the agent (or attorney-in-fact) who's given authority under someone's power of attorney for finances. Trustworthiness is most important, of course. But beyond that, different people might fit different needs. For complicated one-time transactions, the agent should be familiar with the particular financial matter. For temporary handling of everyday money matters while the person is away, it should be someone with easy access to the necessary paperwork. For ongoing, general power-of-attorney duties while the person remains in charge, it should be someone who gets along well with him and can easily accept what he does and doesn't want done for him.
The most important choice of an agent is for a durable power of attorney. This is someone who will retain authority indefinitely if and when the person granting the power of attonry is permanently incapacitated. The durable power-of-attorney agent should not only be capable of handling all financial affairs but also be willing and able to give sufficient time and energy to these responsibilities over the long term.
Does someone need a durable power of attorney for finances if all his assets are held jointly with his spouse?
If your father, for example, and his present spouse, have all their income and assets under both their names, it may not seem as if there's any need for a power of attorney for finances. If something happens to your father, the spouse already has authority over the assets. But a durable power of attorney for finances is still a good idea. That's because one spouse may become incapacitated at the same time, or soon after, the other. Or, a separate asset or income might later c ome to your parent without his spouse's name on it.
Does someone need a durable power of attorney for finances if he's set up a living trust?
The trustee of a revocable living trust may have much the same authority to deal with someone's finances as the agent does in a durable power of attorney. Even if he has a living trust, however, it's still a good idea for him to execute a durable power of attorney for finances. (He could name the same person to both jobs -- trustee of the living trust and agent in the power of attorney.)
The reason it's wise to have a separate document is that not all his income and assets may wind up in the living trust; if some income or asset comes to him after he's incapacitated or wasn't placed in the trust through some oversight, the trustee would have no authority over it.
Who should have copies of a power of attorney for finances?
The original power-of-attorney document should be kept in a safe place, either at home, in a safe deposit box, or at his lawyer's office. The person named as agent or attorney-in-fact in the document should be given a certified copy and told where the original is. Alternate or successor agents should also get certified copies and be told where the original is, as should close relatives. His tax preparer, accountant, lawyer, and broker should have copies in their files. And each financial institution where he regularly does business or maintains an account should also have a copy for its files.