Many people feel nervous at the thought of a power of attorney. It
can be intimidating to consider giving another person or agent the
authority to make financial decisions on your behalf.
There are valid reasons to consider a power of attorney if the need
arises. In layman’s terms, a power of attorney is a legal document
that allows someone (an individual or an entity) to conduct business
on your behalf. There is more than one type of power of attorney.
These include both financial and medical.
A medical power of attorney should contain specific information
about who can make medical-related decisions when someone becomes
incapacitated and cannot make these decisions for himself or
herself. Experts generally agree that financial powers of attorney
should not include medical information.
A financial power of attorney can be either durable or nondurable.
It is important to know the difference and when you may need one or
the other. Most people consider durable powers of attorney when
there is a chronic illness involved or a date in the future when it
might be foreseeable that illness can be disruptive to someone.
Financial Areas to Consider:
Regardless of the type of power of attorney chosen, there are broad
areas of consideration concerning finances. These include (but may
not be limited to) the following types of financial transactions:
Each state allows for fairly standard rights to be allowed through a
power of attorney, although you want to do specific research in your
state if there are unusual financial circumstances to consider.
Nondurable Power of Attorney:
A nondurable power of attorney is generally used for limited
transactions. For example, if someone needs to grant authority for a
single transaction, such as a stock trade, a nondurable power of
attorney would be most applicable. Another reason to use a
nondurable power of attorney would be if someone were traveling and
unable to conduct business from home. Some states refer to this type
of power of attorney as a special power of attorney.
Durable Power of Attorney:
A durable power of attorney is the one that often comes to mind.
These are the legal documents that can start immediately and allow
someone to act on your behalf until it is either revoked or upon
your death. For individuals who are facing a chronic, debilitating
illness or who may be preparing for a future incapacitation (such as
a possible nursing home commitment), a durable power of attorney
could fit these situations.
A durable power of attorney can be written so that it can be invoked
at a future point in time. For someone with a chronic or potentially
debilitating illness on the horizon, this type of instrument may be
best to use. Usually a physician or other recognized authority will
designate the time when an individual is no longer competent to
manage their own legal affairs. At that point in time, the power of
attorney will “spring” into place, allowing your agent to begin
managing your financial obligations. For this reason, sometimes you
may see references to a “springing” power of attorney.
Choosing Someone to Manage Your Affairs:
Deciding which type of power of attorney may be straightforward,
depending on the circumstances. Finding a trusted person to manage
your financial affairs may not be as easy. The “agent” can be a
family member or friend whom you trust to manage financial affairs
with the same due diligence as you would yourself.
It is generally a good idea to appoint more than one agent, even if
you specify that only one of them may act at any given time. For
example, a husband gives his wife power of attorney upon finding out
that he has Alzheimer’s disease. The wife subsequently becomes
incapacitated and is unable to care for her affairs, as well as that
of her husband’s. Having more than one agent appointed will allow
the husband’s power of attorney to stay in force without possible
legal proceedings over his affairs.
Preparation and Filing:
You can find standard durable and nondurable power of attorney forms
online at several different websites, or an attorney may give you a
standard one that includes powers that you can grant or strike,
depending on your individual circumstances. An attorney can prepare
one for you for a fee; however, it is not necessary for an attorney
to be involved unless you have special circumstances to consider.
A power of attorney is still valid, even if it is not on file at
your local county clerk’s office. It does need to be signed in the
presence of a notary public. It is especially important to keep
originals safe, as sometimes banks and other entities will want to
make a copy of the original when granting someone else access to
your private financial information.
Can I Still Manage my Own Finances?
In most cases, the answer is yes. When a “springing” power of
attorney is in place, someone other than the agent will make the
decision to enforce the power of attorney. Until that point, you are
still able to control your own financial decisions. For other
situations, as long as you are comfortable making financial
decisions, there is no reason that someone else has to do it for
you.
What if it Doesn’t Work Out?
A power of attorney can be revoked at any point in time. Usually
they are revoked when either the agent or the principal (the person
who needs financial affairs managed) decides that the arrangement
isn’t succeeding as planned. While it is not necessary to contact an
attorney to prepare a power of attorney, some experts suggest that
consulting an attorney may be wise when revoking one.
Compared to making the financial decisions, invoking a power of
attorney can be a relatively simple process. Before developing one,
make a list of financial obligations and decide how you would want
these handled in the event that you are unable to take care of them
yourself. Discuss your decisions with loved ones and develop a trust
relationship with someone that would be designated as agent. If
possible, find more than one agent to avoid delays and other legal
complications in the event that your first choice is unable or
unwilling to perform the necessary requirements. Decide if you need
a durable or nondurable power of attorney. Finally, develop the
power of attorney and have it signed. Keep the original in a safe
place and make certain your agent(s) knows where to locate it when
it is needed.
Discussing issues related to handling financial information is best
done in advance when the stress of a chronic illness or debilitating
condition will aggravate a situation. Calm decisions made in advance
will allow others to make informed decisions when the power of
attorney is in force.
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