A Financial Power of Attorney is a document that allows one person (the “Grantor”) to name another (the “Agent”) to make financial decisions on behalf of the Grantor.
Just like a Will, not everyone needs a fancy or expensive Financial Power of Attorney; it really depends upon your wealth and the complexity of your situation.
However, at The Pollock Firm LLC, we believe everyone should have at least a basic Financial Power of Attorney. Here are some of the most important reasons why:
A Financial Power of Attorney Allows you to Decide Who can Control your Assets, Especially if you are INCAPACITATED
One of the most important things you must decide on when preparing a Financial Power of Attorney is who should be your Agent. An Agent is the person who comes into your house, looks through all your things, gathers up your money, pays your bills, and ensures your financial security.
If you do not have a financial power of attorney, and you become incapacitated, the only way your loved ones can manage your finances is by instituting an expensive Guardianship action. It is much better for you to decide who you can trust to fill these roles than to have a Court decide.
A Financial Power of Attorney Can Help Avoid Litigation
If you become incapacitated, your next of kin may fight over who has the right to be your guardian and control your assets. Having a financial power of attorney in place can help avoid litigation because you will have a clear written plan as to who you wish to be in charge.
Additionally, a Court will usually side with the person you name as Agent in the POA unless the contesting party can show that the Agent you named was abusing his or her fiduciary duty.
Durable Powers of Attorney and Nondurable Powers of Attorney
One of the big decisions you must make is whether you wish to have a durable power of attorney or a nondurable power of attorney.
A durable power of attorney is effective the second that it is signed. This is most frequently used between spouses, a parent and a trusted child, and same-sex couples.
A non-durable power of attorney, also known as a traditional power of attorney, is only effective in the event the Grantor becomes incapacitated. A nondurable power of attorney is frequently used when the Grantor prefers to be in total control of his or her assets or if the Grantor does not have someone that he or she can trust completely.
Common Misconceptions About Financial Powers of Attorneys
- You will NOT lose control of your finances if you sign a Financial Power of Attorney. First, even if you sign a power of attorney, you will still be in control of your assets. Second, almost all powers of attorney can be revoked or modified at any time as long as you have the capacity. So while the Grantor is definitely giving another person access to his or her money, and must be careful in choosing a trusted Agent, the Grantor does NOT lose control of their finances.
- A Financial Power of Attorney does not replace a Last Will and Testament. Many Agents named in a Power of Attorney will try to make bank transfers after the Grantor has passed away. The instant the Grantor dies, his or her Power of Attorney is no longer effective.
- A Financial Power of Attorney does not act as a Health Care Power of Attorney. Unless the Power of Attorney is a combined Health Care and Financial Power of Attorney, the Grantor needs another document so that his or her loved ones can access medical information and make medical decisions for the Grantor.
- Banks can NOT require a person to sign their Power of Attorney Forms. I receive at least 3-4 calls a year from individuals who claim that some financial institution will not accept their power of attorney form and want them to sign the bank’s standard power of attorney form. Usually, a low level person at the bank simply wants to have their forms filled out. If you contact a manager or the legal department at the bank, they will let you use your form.
Other General Benefits of a Financial Power of Attorney
A good Financial Power of Attorney will often allow for:
- Tax Planning—the Grantor may wish to allow the Agent to gift his or her money to a spouse, children or charity for tax and Medicaid planning purposes.
- Real Estate Transfers—many times a couple wishes to sell real estate, but one of the spouses is unavailable due to illness, travel, or business. A power of attorney can allow for a smooth transaction with the other spouse signing all the real estate documents as an Agent for the party who is unavailable.
Kevin Pollock is the Wills Trusts and Estate lawyer in charge of the firm’s Estate Planning Department.
For more information on Powers of Attorney, please visit my blog: Kevin A. Pollock BLAWG