We’ve all heard of it. TV shows and movies portray the Power of Attorney as a way to take control of someone’s assets once they are declared incompetent. Although this is one function of a Power of Attorney, it encompasses far more. Rather than seeing the Power of Attorney as a way for someone to take control of your assets, you would be more correct in seeing it as a way to give someone the ability to manage your assets the same as you can.
There are two types. One for financial and one for health care.
Financial Power Of Attorney
Commonly Asked Questions About The Financial Power Of Attorney
What is a Financial Power of Attorney?
A document called a “Financial Power of Attorney” allows you to name one or more persons to help you handle your financial affairs.
What is a General Versus Limited Power of Attorney?
If you want your Agent to have the greatest range of authority, then you will want to draw up a General Power of Attorney. This document allows your Agent to conduct business in your name at any time. In this case, the Agent is given authority over your assets. For some people, this is too much power.
If you want to limit the power of your agent, you may decide to sign a Limited Power of Attorney. This document gives the Agent authority over only specific assets or to do only limited things, like sell your car while you are on vacation.
Depending on your individual circumstances, you can give this person or persons complete or limited power to act on your behalf. This document does not give someone the power to make medical decisions or personal decisions for you.
A Power of Attorney is a legal instrument that is used to delegate legal authority to another. The person who signs (executes)a Power of Attorney is called the Principal. The Power of Attorney gives legal authority to another person (called an Agent or Attorney-in-Fact) to make property, financial, and other legal decisions for the Principal.
What Can My Agent Do?
The “Agent” is the person to whom you give power to handle your financial affairs.
The “Principal” is you.
Your decision to use this document is a very important one and you should think carefully about what financial decisions you want your Agent to make for you. With this document, you may have given your Agent the right to make all financial decisions.
When A Power Of Attorney Is Used
A Power of Attorney can be used in many instances. When you go on a trip abroad, you might want to sign a Power of Attorney so that someone can handle situations, like selling stock or buying property, for you while you are unavailable. You might also consider a Power of Attorney if you know that you are going to have a long hospital stay. The most common use of a Power of Attorney is when you become incapacitated and can no longer take care of your own financial and personal needs.
Have you ever thought about what would happen to your assets if you were unable to take care of them yourself? Who would pay the bills? Who would file your taxes? Who would hold, buy, or sell your stocks or bonds? If you have planned properly, this is what your Agent can do with the proper Power of Attorney.
Do I Give All My Powers Away?
No. Even with this document, you can still handle your own financial affairs as long as you choose to or are able to.
You need to talk to your Agent often about what you want and what he or she is doing for you using the document. If your Agent is not following your instructions or doing what you want, you may cancel or revoke the document and end your Agent’s power to act for you.
How Do I Revoke My Financial Power Of Attorney?
You may revoke your financial power of attorney by writing a signed and dated revocation of power of attorney and giving it to your Agent. You should also give it to anyone who has been relying upon the financial power of attorney and dealing with your Agent, such as your bank and investment institutions.
Unless you notify all parties dealing with your Agent of your revocation, they may continue to deal with your Agent. You should contact a lawyer if your Agent continues to act after you have revoked the power of attorney.
When Does My Agent’s Authority End?
Unless you say in the document when you want your Agent’s power to end, your document will remain in effect even if you become incapacitated or unable to communicate your wishes. However, upon your death or the death of your Agent or successor Agents, the document will be canceled and the Agent’s power to act for you will end.
When Do The Powers Take Effect?
Depending on your circumstances, you may wish to specify an occurrence or a future date for the document to become effective. You could make it “spring” into effect in the event of your incapacity. Unless you do so, the power of attorney becomes effective immediately.
What Are The Drawbacks Of The Financial Power Of Attorney?
Although a Financial Power of Attorney is an important part of any estate plan, it does have drawbacks.
- A third party does not have to recognize the Power of Attorney. This is especially true of financial institutions. Most have their own forms and own pre-approved language. The way around this is to file their forms at the same time you file your Power of Attorney. Additionally, the IRS will not recognize a Power of Attorney unless you use IRS Form 2848.
- Old Powers of Attorney are often not honored. People are less likely to recognize an older Power of Attorney for fear that it is no longer valid. Keeping your Power of Attorney up to date is essential. We recommend updating the Power of Attorney every two years.
- Complex Powers of Attorney are often not recognized. If you have too many instructions in your Power of Attorney, third parties often decide not to take their chances.
- Different states have different laws. In some states, if your Agent resigns or can no longer serve as your agent, your Power of Attorney is revoked – even if you named more than one Agent.
- It is like handing someone a blank check. There are few restraints once your Agent is given the Power of Attorney. That is why it is important to pick someone you trust implicitly. Most people choose a spouse or other relative to be their agent. You might also choose a close friend or a professional advisor.
- You may still have to go through Living Probate. If someone doesn’t like your Agent and what he/she is doing, they can institute a Living Probate against you. The judge then has the power to revoke your Power of Attorney or direct your Agent contrary to your wishes.
- No one can be sure if your Power of Attorney has been revoked. Even if you decide to revoke your Power of Attorney, it is hard for others to know that it has been done. That is why many third parties will not accept it. The best way to revoke your Power of Attorney is to cancel your power of attorney by signing a revocation and destroying all copies of the original Power of Attorney.
Who Can Become Your Agent?
Legally speaking, an Agent can be anyone who is legally competent and over the age of 18. The truth is, however, that picking an Agent is a very important consideration. You have to remember that this person will have control of at least some portion of your assets for some portion of time as set up by the Power of Attorney. Since you are granting such great control to someone else, you should never give that control to someone you don’t trust or don’t feel would have your best interests, or the best interests of your family, at heart.
More than one person can be named as an agent. Keep in mind that naming two or more individuals to act together can prove inconvenient, particularly if a Power of Attorney must be exercised promptly. A better course may be to name one individual as Agent and then another as a backup.
Although requirements vary from state to state, creating a Power of Attorney is not difficult. It typically only requires a simple notarization or signing the document in the presence of witnesses.
With a Power of Attorney, you give someone power to deal with different aspects of your life – anything from financial to medical. Your Agent’s authority — from when he or she starts serving as your Agent, to what your Agent may do, to how long your Agent may do it — depends on the kind of Power of Attorney you create. Regardless of the type of Power of Attorney you choose, doing so is part of any good estate plan. Talk to a qualified estate planning attorney to find out what kind of Power of Attorney is right for you.