The wealth, including the investments and property, we accrue during our lifetime are often significant. While you have carefully managed your finances through the years, there may eventually come a time when you cannot handle such decisions due to age, disability or incapacity. To plan for the likelihood that you are unable to manage your financial affairs, it’s important to get your affairs in order while you’re still of sound mind.
For starters, you should execute a financial power of attorney. It’s one of the most important estate planning decisions to make while you’re healthy. Assigning the duty to a trusted loved one, friend, or professional can help 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 money and legal decisions should you become incapacitated. Understanding the different types of financial powers of attorney can help you make an educated choice for yourself as to when and what type of assistance you may need.
As an adult, no one is automatically able to act for you, not even your spouse, you must legally appoint them with a financial power of attorney. Failing to properly designate someone to make your financial decisions prior to your incapacity could require your family to go to court in a process called a guardianship to have someone appointed to do the job. This is often costly, requiring thousands of dollars in legal fees and court costs that could easily be avoided with a properly prepared and executed financial power of attorney.
Limited and General Powers of Attorney
A limited power of attorney allows someone else to act in your place for a very limited purpose. For example, you might opt to pursue this option if you need to sign a deed on a day you’re out of town. Arranging for someone to represent you and sign on your behalf is possible through a limited power of attorney. Other financial matters not outlined in the limited power of attorney documents cannot be handled by the person you choose.
A general power of attorney, on the other hand, is a good option for a comprehensive approach. The person you select, also known as your attorney-in-fact, can sign any and all documents on your behalf, whether or not you are incapacitated. They can also pay your bills, conduct financial transactions, and generally manage your property and money. Anyone who could use an extra set of eyes on their finances may find this option useful.
These types of powers of attorney are used on a case by case basis for the specific situation in which they are needed. Care should be taken also when creating a general power of attorney. If your attorney in fact decides to use your power of attorney to obtain credit or make purchases in your name, the financial costs could be devastating. For this reason, we often create limited or general powers of attorney with an expiration date.
Durable Powers of Attorney
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. However, it is best to choose a general power of attorney with broad powers because once you become incapacitated you cannot later change it to add additional powers. Typically, a durable power of attorney is created to go into effect when the person who created it becomes incapacitated or disabled to the point where they cannot manage their financial or legal affairs. If someone is elderly, or is nearing the point of becoming incapacitated but is still of sound mind, we can also create a durable power of attorney to be effective upon signing. Whether or not the durable power of attorney is effective at a future time, or immediately, it remains in effect until the incapacity ceases or you die. Powers of attorney cannot be used after you are deceased.
Regardless of your priorities, there is a financial power of attorney right for your situation and goals. Determine your specific needs for an attorney-in-fact while you are of sound mind. Of course, nothing tops the advice and recommendations of an attorney experienced in these matters, so if you are wavering between your options, give us a call.
