What is a Financial Power of Attorney and How Does it Work?

A financial power of attorney (POA) is a legal document that authorizes another individual to make decisions regarding your financial matters. You, the person granting authority, are called the “principal,” and the person who has authority to act on your behalf is called the “agent” or the “attorney-in-fact.” The person you name as your agent does not have to be an attorney.

A power of attorney document can either become effective immediately or upon the occurrence of a future event. If the power of attorney is effective immediately, your agent may act on your behalf, even if you are available and not incapacitated. You may decide to give your agent authority to act on your behalf immediately if you cannot be present for a particular transaction or if you want your spouse or another person to have access to an account that is not jointly held.

In most cases, however, you don’t want to give someone authority to act on your behalf as long as you can do so yourself. Instead, you want the power of attorney to become effective in the event you become incapacitated, i.e. you are mentally and/or physically unable to make decisions due to mental illness, Alzheimers, stroke, being in a coma, etc. If you are incapacitated and cannot pay your bills or deal with your personal affairs, your agent can take care of those tasks on your behalf.

A power of attorney can also be limited in time. For example, if you are having major surgery and you will be hospitalized for three months, you can limit the power of attorney for that time. Power of attorney documents are flexible and allow your personal affairs to be managed by someone you trust if you are temporarily or permanently incapacitated.

With regards to the scope of authority granted to your agent, you can authorize your agent to do as much or as little, as you wish. Most people grant their agent the authority to conduct all financial matters, while others may authorize a single transaction. A general grant of authority allows your agent to act on your behalf concerning matters such as the following:

   – Real property transactions

   – Tangible personal property transactions

   – Stocks, bonds, and other securities transactions

   – Banks and other financial institution transactions

   – Operation of Entity or Business

   – Insurance and Annuity transactions

   – Estates, trusts, and other Beneficiary interests

   – Claims and Litigation

   – Personal and Family Maintenance

   – Benefits from Governmental Programs or Civil or Military Service

   – Retirement Plans

   – Taxes

The person you designate as your agent has a legal obligation – a fiduciary duty– to act in your best interests. In deciding who you want to designate as your agent, here are some things to consider –

   – Do I trust this person?

   – How does this person manage their own financial affairs?

   – Will this person charge a fee to act as my agent? Generally, family members will act for free, but if you choose an attorney or accountant as your agent, a fee is usually involved.

   – Has this person agreed to act as my agent?

If you ever become unsure of your agent’s trustworthiness or if a conflict of interest arises, you can terminate the agent’s authority to act for you by revoking the power. It is also a good idea to appoint an alternate agent in the event your agent is unavailable or unwilling to act as your agent.

The authority you confer to your agent ends upon your death. The authority also ends if you revoke it, a court invalidates it, your agent is no longer able to serve and you have not appointed an alternative or successor agent.

This blog post is intended only to be informative and is not a substitute for comprehensive legal advice. For legal advice regarding your estate planning needs, please call our office at (319)260-2096 or e-mail stephanie@sailerlaw.com.

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