Choosing a Financial Power of Attorney

A financial power of attorney is one of the most important estate planning documents you can have. A successful power of attorney is created BEFORE an emergency occurs. Waiting “until” you need it often leads to unfortunate consequences.

Posted on May 31, 2024

What is a Financial Power of Attorney?

It is a legal document that names a person you appoint as your "attorney-in-fact" or agent -- to act in your place for financial or other purposes when and if you ever become incapacitated.

Most power of attorney documents run several pages and involve a number of important decisions. Here are some topics to consider when selecting your agent:

Whom to appoint. Of course, you need to appoint someone you trust implicitly. The person also needs to be organized, responsible and have the time available (or be able to make the time available) to conduct the functions of paying bills, guiding investments and handling any legal matters that may arise. Generally, people appoint family members to this role, but sometimes none of their relatives are appropriate, in which case they may appoint a friend or even an accountant, attorney or clergy person. If there's no one to appoint, despite the benefits of the power of attorney, you may need to resort to a court-appointed conservator in the event of incapacity.

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Co-agents. You may appoint one or more individuals to act as your agent. Having multiple agents allows more than one person to share the responsibility and permits them to divvy up tasks. If you appoint more than one, make sure that the document permits each co-agent to act on his or her own. Requiring them to act together provides checks and balances, but it could become very cumbersome if all your agents have to sign every check or other document. Also, if you appoint more than one agent, make sure they get along and communicate.
Alternates. Instead of naming co-agents, you can name one or more alternates in case the first person you appoint cannot serve. For instance, you may name your spouse as your agent and your children as alternates. If you do name alternates, make sure the document is clear about when the alternate takes over and what evidence he or she will need to present when using the power of attorney.

Gifting. Powers of attorney usually go on for several pages listing the various powers the attorney-in-fact may utilize. This is because financial institutions and tax authorities often look for and demand specific authorization for the tasks the agent is seeking to perform. One of the most important powers is the power to gift. Providing the power to gift permits your agent to support children and grandchildren, take steps to reduce taxes or qualify for public benefits.

Trust powers. Similar to the power to make gifts, it can be important to authorize the attorney-in-fact to make, amend, and fund trusts on behalf of the principal. Power of attorney forms often permit the funding of preexisting trusts but not their modification or the creation of new trusts. These powers can be extremely important in the context of long-term care planning, asset protection planning or special needs planning for spouses, children, and grandchildren.

Copies and storage. Most powers of attorney documents include language saying that a copy be treated like an original, but this is not always honored by third parties. Usually, people keep the originals themselves and tell their agents where the documents are located as well as provide copies.

Creating a financial power of attorney is not as simple as it first seems. It is important to have a qualified elder law or estate planning attorney help you.