Power of attorney is often used when a person is disabled and unable to make their own choices.
A power of attorney (POA) is a legal document that empowers one individual to act on behalf of the principal. For example, this agent can be legally authorized to decide the principal’s property, finances, or medical care. A power of attorney is often used in the case of the principal’s sickness or incapacity or when the principal cannot sign required financial transaction papers in person.
A power of attorney can terminate for various reasons, including when the principal dies, revokes it, divorces, a court invalidates it, or the agent cannot fulfill the specified responsibilities.
General POAs terminate at the creator’s incapacitation. A “durable” power of attorney stays in effect to allow the agent to handle the creator’s affairs. A “springing” power of attorney takes effect only if and when the POA creator becomes incapacitated. For example, a medical or healthcare power of attorney empowers an agent to make medical decisions on an incapacitated person’s behalf. Finally, a limited power of attorney gives restricted authorization over specified duties.
Understanding Power of Attorney
When preparing for long-term care, a power of attorney should be considered. There are many distinct POAs, each of which falls under broad or restricted power of attorney.
A general power of attorney operates on the principal’s behalf in any situation to the extent permitted by the state. Under a broad power of attorney arrangement, the agent may be allowed to handle matters such as managing bank accounts, selling property, signing checks and assets such as stocks, and filing taxes.
A limited power of attorney empowers the agent to act on the principal’s behalf in specified instances or circumstances. For example, the restricted power of attorney may specify expressly that the agent is authorized to solely handle the principal’s retirement funds. Additionally, a restricted POA may be enforced for a certain period of time.
However, a point to remember is that state laws differentiate how a power of attorney works. For example, let us consider limited power of attorney in two states: Georgia and Massachusetts. In Georgia, you need to have at least two witnesses when signing/notarizing the documents, while in Massachusetts, you do not need witnesses.
Most power of attorney agreements allows the agent to act on behalf of the principal in all property and financial issues as long as the person’s mental condition is sound. If the principal becomes incompetent in making their own choices, the POA agreement immediately terminates. However, suppose the POA is to stay effective when the individual’s health deteriorates. In that case, the individual must execute a durable power of attorney (DPOA).
While planning for the future with a POA may alleviate some of the difficulties associated with attaining your financial objectives, it may seem to be a daunting process. Therefore, you may want to see an attorney who specializes in investment-based agreements. There are certain things wealthy people do and don’t do; using the power of attorney is definitely one of them.
Choose an Agent Who Knows Your Investment Objectives
The agent should be a trustworthy person who is knowledgeable about your financial goals. Your agent does not need to be a financial expert. Instead, he or she should possess the necessary expertise to make financial choices and interact with your broker or advisor. If you have a joint account with your spouse, but your spouse is not your agent, consider the effect of a POA on the administration of your account if you become incapacitated.
Make Your Power of Attorney Durable
This kind of power of attorney dictates when your agent’s authority takes effect and when it is revoked. If you become incapacitated, a durable POA stays enforced, while a non-durable POA is revoked. A durable power of attorney offers certainty if you are suddenly unable to handle your money. Without one, a court may be forced to appoint someone to operate on your behalf.
Do Not Get Forced into Signing a POA
Give someone control of your money with caution and take time to make an informed decision. If you are under duress to sign a POA for your financial assets, take a pause and refrain from signing the paperwork. Instead, consult with other experts, such as your lawyer or financial advisor, to get a second opinion and share your goals and concerns.
Determine if Your Banking Institution Has Its Own Power of Attorney Paperwork
Inquire about firm-specific POA papers when establishing an investment account or the next time you speak with your financial advisor. Numerous banking companies will need you to sign their POA forms. If you do not utilize the paperwork provided by your business, they may request extra information to verify the legitimacy of your POA.
Consult Your State’s POA Requirements
State regulations regarding POA vary. As a result, it is critical that you understand the relevant regulations, both in your home state and in the jurisdictions where you have investment accounts, before establishing your POA. Although most states will recognize a legal POA from another state provided it is written and notarized, verify it with your state.
For many states, the state POA requirements and paperwork are available on the state’s official website. Additionally, it is prudent to consult an attorney licensed in your state to verify that you understand local regulations and that your POA complies with legal requirements.
Have a Backup Plan
Consider designating a successor representative in your POA who can take over if your agent becomes unable to continue or if you, your loved ones, or a professional financial suspect your agent of fraudulent conduct.
A power of attorney can offer clarity about how your affairs will be handled while you are alive, but it does not replace the need for a complete estate plan that takes effect upon your death. Also, POA agreements expire at your death or the death of your agent, and you should consider what will happen to your investment holdings and other financial assets when you die.