DURABLE POWER OF ATTORNEY FOR FINANCIAL MANAGEMENT
A durable power of attorney for financial management — or financial power of attorney — is a simple, inexpensive, and reliable way to arrange for someone to manage your finances if you are no longer able to make decisions for yourself. If you become unable to make decisions for yourself and you haven’t prepared a durable power of attorney, a court proceeding is probably inevitable. Your spouse, closest relatives, or companion will have to ask a court for authority over at least some of your financial affairs.
When a Financial Power of Attorney Takes Effect
A financial power of attorney can be drafted so that it goes into effect as soon as you sign it or, you can specify that the power of attorney does not go into effect unless a doctor certifies that you have become incapacitated. The later is called a “springing” durable power of attorney. It allows you to keep control over your affairs unless and until you become incapacitated, when it springs into effect. You must specify that you want your power of attorney to be “durable” so that it isn’t revoked by your incapacity.
Your Agent’s Duty
When you create and sign a durable power of attorney, you give another person legal authority to act on your behalf. This person is called your agent or your attorney-in-fact.
Commonly, people give their agent broad power to handle all of their finances. But you can give your agent as much or as little power as you wish. You may want to give your agent authority to do some or all of the following:
- use your assets to pay your everyday expenses and those of your family
- buy, sell, maintain, pay taxes on, and mortgage real estate and other property
- collect Social Security, Medicare, or other government benefits
- invest your money in stocks, bonds, and mutual funds
- handle transactions with banks and other financial institutions
- buy and sell insurance policies and annuities for you
- file and pay your taxes
- operate your small business
- claim property you inherit or are otherwise entitled to
- transfer property to a trust you’ve already created
- make gifts to a group of beneficiaries
- hire someone to represent you in court, and
- manage your retirement accounts.
The agent is required to act in your best interests, maintain accurate records, keep your property separate from his or hers, and avoid conflicts of interest.
When a Financial Power of Attorney Ends
Your durable power of attorney automatically ends at your death. That means that you can’t give your agent authority to handle things after your death, such as paying your debts, making funeral or burial arrangements, or transferring your property to the people who inherit it. If you want your agent to have authority to wind up your affairs after your death, use a will to name that person as your executor or a trust to name that person as a trustee.
Your durable power of attorney also ends if:
- You revoke it. As long as you are mentally competent, you can revoke a durable power of attorney at any time.
- You get a divorce. If your spouse is your agent and you divorce, your ex-spouse’s authority is automatically terminated.
- A court invalidates your document. It’s rare, but a court may declare your document invalid if it concludes that you were not mentally competent when you signed it, or that you were the victim of fraud or undue influence.
- No agent is available. To avoid this problem, you can name an alternate agent in your document.
Choosing the right agent
The person that you choose to act as your agent must be the right person for the job. They must have the ability to handle financial matters and the time to do so effectively. We have drafted hundreds of these documents for our clients over the years and can help you evaluate your potential agents to determine who the best person for the job is. If you are interested in establishing this type of document, please contact our office.