If you’ve carefully managed your finances through the years, you may have accumulated a significant amount of assets, and a time may come when the decision-making abilities that brought you here are no longer within your reach. To plan for the day when you are unable to manage your financial affairs, it’s important to take steps to put everything in order while you’re still of sound mind.
First, you’ll want to establish a financial power of attorney. This is one of the most important estate planning decisions you make while you’re healthy. Assigning this duty to a trusted relative, loved one, friend, or professional can ensure your financial matters are taken care of and your wishes are respected. Financial powers of attorney give the designated agent the power to manage your financial affairs if you become incapacitated. Understanding the different types of financial powers of attorney can help you make an educated choice for yourself as to the type of assistance you may need.
If you don’t clearly designate someone to make your financial decisions, the court may have someone appointed (through an expensive, time-consuming, and public process known as conservatorship). If you are an adult, no one is automatically able to act for you, so if you have a trusted person in mind now, you must legally appoint them through the use of a financial power of attorney or be left at risk of who the court decides the right person should be.
How Much Authority Should You Give?
A limited power of attorney allows your appointed agent to act in your place for a very limited purpose. For example, you might choose this option if you need to sign a deed on a day you’re out of town. You can arrange for someone to represent you and sign on your behalf through a limited power of attorney. Any financial matters not outlined in the limited power of attorney cannot be handled by this person.
A general power of attorney, on the other hand, can provide a comprehensive approach. The person you select, also known as your attorney-in-fact, can sign any and all documents on your behalf (sometimes with an incapacity trigger / sometimes without – discussed below). They can also pay your bills, conduct financial transactions, and generally manage your property and money. This can be useful if you need an extra set of eyes on your finances.
When Should My Attorney-In-Fact Act?
Just as there are different scopes of authority you can give your attorney-in-fact, you can also choose when you want the power of attorney to become effective. A durable power of attorney can be as general or as limited in scope as you’d like. This instrument goes into effect the moment you sign it and remains in effect until you pass away unless you rescind it while you are of sound mind.
Springing powers of attorney, on the other hand, allow your attorney-in-fact to act on your behalf only if you become incapacitated. Criteria outlining what constitutes incapacitation can and should be properly addressed in your document as you create it. It is important to note that this type of power of attorney can be cumbersome for your attorney-in-fact. In many cases, if he or she tries to transact business on your behalf using a springing power of attorney, the financial institution will want proof that you are incapacitated, which can be time-consuming and difficult to obtain – but a springing power of attorney is more protective than one that is not as it has these checks and balances built-in.
Evaluate your priorities and then determine your specific needs for an attorney-in-fact while you are of sound mind. To do this, you’ll benefit from the advice and recommendations of an estate planning attorney experienced in these matters. If you are unsure of your options and need some help as you move forward, give us a call.