Most people think of estate planning as preparing for the inevitable—when you are no longer around to take care of your loved ones and their financial needs. Having a well-thought-out estate plan is essential, but it should also consider how you will be taken care of if you can no longer manage your own financial affairs.- A financial powers of attorney –
What is A Financial Power of Attorney?
A financial power of attorney (POA) is a legal instrument you can use to designate someone to act on your behalf and in your best interest. They may do any or all of the following on your behalf:
- Open bank accounts
- Sign checks
- Collect mail
- Pay bills
- Make bank deposits or withdrawals
- Manage real estate
- Hire attorneys
- Invest money
- Run a business
- File taxes
A financial POA can be in force immediately or springing, which means that someone will act on your behalf after certain conditions are met, such as becoming incapacitated or unable to make your own decisions.
Whether you use an immediate POA or a springing POA, you determine how much discretionary latitude you will give your agent. You will determine what your attorney-in-fact or agent will do for you and how they will handle your affairs. You can restrict your financial POA to act only in certain conditions or limit them to certain activities.
A financial POA can be revoked at any time. Therefore, when preparing your financial POA, it is important to state the exact language for revocation. For example, your financial POA is revoked if you are not disabled or incapacitated. However, a medical exam may be needed to make this determination. In addition, any signed POA is automatically revoked upon your death.
Incapacity is a term that can refer to a wide range of situations in which you are not mentally or physically capable or available to make your own decisions. Examples include:
- Having a mental illness
- Having a physical illness or disability
- Being an advanced age
- Abusing drugs or alcohol
- Being kidnapped or physically missing, or not available
- Having low intellectual capacities
Your financial POA will define incapacity and how it will be determined in your case. You can choose to have your personal physician make the determination or even require that the diagnosis be confirmed by multiple physicians independently. When they determine that you meet the requirements to be medically incapacitated, a springing POA takes effect.
Potential Problems with a Springing POA
Financial POAs are inherently difficult because you don’t want to be without a financial POA if you need one, but it’s disconcerting to give someone else power to make your decisions without oversight by a court or a third party.
If you become incapacitated and don’t have a financial POA, your family will need to petition the court to appoint a conservator or guardian. This can be a lengthy process that costs thousands of dollars. Until this person is appointed, there will be no one managing your financial and business affairs.
A springing POA can be a solution because it can help if you become incapacitated without giving your agent premature access to your affairs. However, you should be aware of the following issues with springing POAs:
- Your springing POA does not take effect until you are deemed medically incapacitated, a process that can take time, even when no one is disputing that it is the case.
- There may be disagreement between parties and family members about whether you are truly incapacitated. Perhaps you have a slow decline in function or alternate good and bad days. Family members can challenge a diagnosis of incapacity in court, and your springing POA cannot act until a decision has been made.
- Your bank may be uncomfortable providing access to your accounts unless they see the financial POA document, the physician’s letter, and other documents that verify that a springing POA has been activated and your agent has the authority to act on your behalf. Even with proper documentation, some banks will not honor a financial POA if it is more than a couple of years old. Some banks may even require that you use their forms to designate a financial POA. Talk to your bank to verify their requirements in advance. It is also a good idea to consult with your estate planning attorney to determine whether a revocable living trust would better meet your needs if you become incapacitated.
- Some states, such as Florida, may not allow springing POAs. Verify that your current state allows springing POAs and recheck if you move to other states.
A financial POA is a very important piece of your estate plans. Your estate planning attorney can help you look at all potential options and ensure that your estate plans include a medical power of attorney, an advance healthcare directive, and a revocable living trust, so you are protected and have someone to manage your affairs should you ever become incapacitated.