Gabriel Katzner - November 9, 2021 - Estate Planning
Financial Power of Attorney Document

Estate planning is a comprehensive plan that can include managing and using your accounts and property during your lifetime as well as their disposition after your death. At its most basic, it is a thorough plan to take care of the future financial needs of your loved ones.

A financial power of attorney (POA) is a tool that enables you to designate one or more people to act on your behalf if you are unable to act for yourself. Discussing the role of a financial power of attorney and making plans for a situation in which you cannot execute your own financial affairs is an important part of estate planning. However, there are some cases in which a financial power of attorney is not valid.

What is a Financial Power of Attorney?

A financial power of attorney is when you grant a person the legal authority to manage your financial affairs. This person is commonly known as an agent or an attorney-in-fact. This power can extend to making banking or real estate transactions, investments, gift-giving, and bill paying.

You can name more than one person to be your financial power of attorney, although there are some drawbacks to doing so. You can also name a single person with alternates to step in if needed. Since your financial power of attorney will be making decisions on your behalf and taking care of your financial affairs, it is always a good idea to verify that they are willing to act in this role and have the time and capabilities to act on your behalf.

In most states, there are two types of financial power of attorney, immediate and springing. The legal authority of an immediate power of attorney takes effect as soon as the document is signed. In comparison, a conditional power of attorney takes effect when a predetermined condition is met, such as when you become incapacitated. Both types of power of attorney are in force only when you are alive. When you die, the authority is revoked.

When A Simple Financial Power Of Attorney May Not Work

In some cases, additional documentation is needed for financial power of attorney to be recognized. Some of these circumstances include when you want your agent to work with the Internal Revenue Service (IRS), the Social Security Administration (SSA), the Department of Veterans Affairs (VA), and some financial institutions.

Working with the IRS

To authorize someone to act on your behalf in front of the IRS, you must complete Form 2848, Power of Attorney, and Declaration of Representative. Form 2848 authorizes an enrolled agent, accountant, or attorney to represent you in IRS audits and negotiations. It is also needed to authorize an agent to handle basic tax matters, such as filing your tax forms or paying your taxes.

See IRS Publication 947 for more details. The IRS may accept a power of attorney that meets the requirements for being a substitute for the form and is submitted along with Form 2848. Your agent must sign the form. Your signature is optional. You must also specify the tax matters and years for which you are authorizing the agent to act.

Working with the SSA

The Social Security Administration does not recognize the financial power of attorney. Therefore, if you want to designate someone to manage your Social Security benefits, you must appoint a representative payee. If you require a representative payee and have not appointed one on your own, the SSA may appoint one for you.

Your representative payee must complete form SSA-11 and usually an in-person application at your local Social Security office. The representative payee is expected to fulfill a range of required duties and be actively involved in the beneficiary’s life. Because there is so much responsibility in this role, your representative payee may be asked to submit a report to the SSA, accounting for how the beneficiary’s benefits were used.

Working with the VA

When pursuing a claim for compensation or special monthly pension benefits, a veteran does not need to be incapacitated to authorize another person to represent them. They may simply be unavailable or require assistance with their claim.

The VA is very specific in the types of representatives it authorizes. The representative must apply for accreditation. An individual representative must use VA Form 21-22a, and an accredited representative must use VA form 21-22. The VA states that an “individual with POA under State law is not authorized, based on the State appointment, to engage in VA representation.” You can learn more about the VA and their policies on power of attorney using this document.

Working with Financial Institutions

Sometimes banks and other financial institutions will refuse to honor a financial power of attorney. This policy may be in place to protect them from inadvertently authorizing an illegal transaction. In some cases, the financial institution may have their own standard power of attorney forms for accounts that they manage.

In some states, such as Florida, financial institutions may be legally required to accept or reject a financial power of attorney within a limited time frame or face penalties for unreasonable denial. Therefore, your best course of action is to check with your financial institutions and see if they have their own financial power of attorney forms and what their requirements are. We can help you verify that your financial power of attorney form meets their requirements and that the two documents are not in conflict.

We invite you to contact our office to discuss your need for a financial power of attorney as part of your estate plans. We can help ensure that you are protected in the circumstances you are concerned about.

You are welcome to schedule a call with us or reach us directly at 855.434.2062 to learn more about how best to plan today to protect those most important to you.

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