Durable Power of Attorney for Finance
Plan Now to Protect Your Loved Ones' Interests Later
What is a power of attorney for finances?
Granting power of attorney for finances means authorizing a person - called an attorney-in-fact, even though the person does not have to be a lawyer - to make decisions about money matters. This can be a general power of attorney, which gives the attorney-in-fact the legal ability to take care of all financial concerns, or it can be a limited power of attorney restricted to fulfilling specific tasks, such as signing checks or managing stocks.
The power of attorney can take effect immediately or at a future date. "Durable" means it remains in effect after people no longer can act on their own behalf.
Seniors and people with disabilities should have a durable power of attorney regardless of their financial status. Bills always need to be paid, and the existence of a durable power of attorney will keep caregivers and family from having to go to court to obtain a guardianship or conservatorship to take care of business. The proceedings take time and money, and because they're open to the public, non-family members might learn intimate details about the person's medical condition and finances.
Why is a power of attorney for finances needed?
A stroke, heart attack or even simple surgery can put a senior or a person with disabilities out of commission - sometimes for a few days but often longer. It's important to make sure someone can take care of business during that time - pay the rent or mortgage, keep up with bills, file taxes or sell property if necessary to cover medical or nursing home costs.
Even if a senior or disabled person is married, the person most likely to take over that responsibility - the spouse - may not be emotionally or physically capable of doing so. It often falls upon the primary caregiver to handle everyday matters, and it will help you if a power of attorney is in place.
Why not wait until it's needed?
If you wait until a senior or disabled person is no longer able to make decisions, it's too late. The person will not be able - physically or mentally - to understand and sign a power of attorney. It pays to plan ahead.
How can I help put a power of attorney into place?
Simple, fill-in-the-blank forms are readily available from books, computer software kits and Internet sites. Be careful, though. Each state has specific laws regarding powers of attorney that must be observed.
You can seek a lawyer's help to clarify complicated provisions. The senior or disabled person must sign the forms in the presence of a notary public. Some states also mandate notarized signatures from one witness or more, and several states require a power of attorney to be filed with a state office. You or the senior also may file a copy with the county clerk's office or the local agency that governs land sales to make sure no problems arise with real estate transactions.
In addition, some banks and financial institutions have their own power of attorney forms, and filling them out will help the attorney-in-fact carry out simple transactions smoothly. Be aware: A bank power of attorney may apply only to accounts at that bank, so a broader power of attorney is a more useful instrument.
Does the attorney-in-fact have to be a lawyer?
No. Anyone capable of handling finances can fulfill this role. It should be someone the ailing senior and the primary caregivers all trust because everyone will have to work closely together as the situation progresses.
If the senior or disabled person I'm caring for has an able spouse, is a power of attorney still necessary?
Probably. A spouse has the legal right to pay bills from a joint account, file a joint tax return and sell some kinds of jointly owned property - stocks, for example. But often state laws prohibit spouses from certain financial actions. For instance, in most states (be sure to check yours) a spouse can't sell a car or home, even if the property is jointly owned. And if the disabled or incapacitated spouse is the individual owner of stocks or other assets, only the attorney-in-fact can access those assets. Even if spouses have a joint tenancy, the joint owner may not have sole authority until after a co-signer's death.
What's the impact of a living trust?
If a senior's property has been put in a living trust, the trust will name a person to serve as successor trustee, and that person usually can take over if the senior becomes unable to handle his or her affairs. But the trustee can make decisions only for property included in the trust. A power of attorney will be necessary to assert control over assets left out of the trust. It also will be necessary to allow the senior to enter into any binding contract for services, goods, etc.
Can this person make health care decisions, too?
No. You need to make sure your senior or disabled person has a durable power of attorney for health care, also called a health care proxy, to do that. And yet another document, a living will, is necessary so doctors know the kinds of life-prolonging treatments a dying, incapacitated patient wants and does not want.
What are the pitfalls of a power of attorney?
The potential for abuse is enormous. Attorneys-in-fact can do whatever the senior could have done, so it is essential they be someone known, trusted and competent to manage financial affairs.
In the event of abuse, a power of attorney can be terminated only if the senior is still competent. Otherwise, you and the family will need to go to court.
The attorney-in-fact might turn out to have conflicts of interest in managing the senior's affairs. Again, care is needed in selecting the right person.
Family members will sometimes contest a power of attorney and make life difficult for the attorney-in-fact. It's best to reach consensus on the designated person beforehand if at all possible.
Divorce can result in the revocation of a power of attorney if the former spouse is the attorney-in- fact.