When you grant someone power of attorney, you give them authority to handle some or all of your financial affairs on your behalf during your lifetime. A power of attorney can have a variety of uses, but it is most common in the estate planning context.
Laws governing power of attorney are state specific, but there are some common threads in these laws. When you give someone else power of attorney, you are the “principal.” The person or company authorized to handle financial matters for you is your “attorney-in-fact.” You do not need to be an attorney to be an attorney-in-fact.
When acting on your behalf, your attorney-in-fact, or agent, is acting in a fiduciary capacity. This means that they must act in your best interests at all times, honor your wishes if known, and make prudent decisions.
If you are creating a power of attorney as part of your estate planning strategy where a trusted family member or friend has authority to manage your finances if you become incapacitated, then you need a durable power of attorney.
“Durable” simply means that your attorney-in-fact will have authority to act on your behalf during periods when you are alive but are incapacitated or incompetent. In contrast, a non-durable power of attorney only gives your attorney-in-fact authority while you have mental capacity.
You should also consider whether your attorney-in-fact should have immediate authority to act on your behalf, or if that power should “spring” into being only if you become incapacitated or are incompetent.
When you create a “statutory” power of attorney form in your state, in most cases the power is immediate. A statutory power of attorney form is one that is designed to comply with your state’s laws. Financial institutions in your state should recognize the statutory form and accept it when presented for use. The primary reason statutory powers of attorney are immediate and not springing is that your financial institutions can rely on the form as is, without having to ascertain your health status and verify authenticity of medical records to prove you are incapacitated or incompetent.
You could create a long-form “springing” power of attorney stipulating that your attorney-in-fact only has authority upon your incapacity or a finding that you are incompetent. However, there is a greater risk that your financial institution may be reluctant to accept and honor the power of attorney as written because they are assuming a greater risk when they have to determine if your attorney-in-fact truly has authority to act on your behalf.
It is understandable to be hesitant about granting someone an immediate power of attorney; the form could be used to fraudulently transact business in your name, or your named agent could use your funds in a manner that you would not have otherwise authorized. You can limit your risk by naming only people or professionals you believe will act appropriately and who will not abuse their authority under the power of attorney form.
Because being granted power of attorney is potentially a big responsibility and gives your named attorney-in-fact authority over your finances, it is important to think carefully about who you name in that role.
You can name any competent adult to act as your attorney-in-fact. In many cases, people name their adult children or grandchildren as their agent(s) under a power of attorney. You could also name another relative, a trusted neighbor, or a close family friend. There are also professional fiduciaries offering attorney-in-fact services for fees. If you do not have a trusted family member or friend you want to name in that role, consider reaching out to the trust department of a local bank or searching for a professional fiduciary in your community.
You can also name one or more successor attorneys-in-fact to act if your first-named agent dies, resigns, or is otherwise unable to serve. Naming one or more successors when you create your power of attorney can eliminate the need to have to update it later if something happens to the person you named as your primary attorney-in-fact.
If you want to name two or more people who will have authority to act at the same time, you will need to decide whether you want your attorneys-in-fact to be able to act independently or jointly. Keep in mind that if you require your attorneys-in-fact to act jointly, it can create logistical challenges if one of them is traveling or is otherwise temporarily unavailable.
In many cases, when people create a power of attorney for estate planning purposes, they give their attorney(s)-in-fact broad authority over their finances. However, you could instead choose to limit your agent's powers to one or more specific types of transactions.
The transactions you can authorize may vary in your state, but commonly include the following:
You should also consider whether you want your attorney(s)-in-fact to be able to make gifts to themselves from your assets when they are serving on your behalf; in other words, whether your agents can write themselves checks from your account or transfer your assets into their own names.
Depending on your state’s laws, you may be able to limit the “gifting” authority to some of your attorneys-in-fact but not others. In other states, all of your agents have the authority or none of them do, based on how you answer the question on the form. If you do not allow gifting, this means that an agent who incurs expenses when acting on your behalf will not be able to reimburse themselves for such expenses or take compensation for their time and effort.
After naming one or more primary and successor attorneys-in-fact, deciding whether to grant broad or limited powers, and deciding whether to create a durable or non-durable power of attorney which is springing or immediate, check your state’s legal formalities for executing a power of attorney.
In most states, the principal’s signature must be notarized. Some states require additional witness signatures. Your nominated attorney(s)-in-fact may also need to sign the form too, although they may not need witness or notary signatures.
You should keep the original signed power of attorney form in a safe place. Generally, a copy of the form is sufficient. However, in certain circumstances, such as when the form is used for real estate transactions, the original may be required.
Estate planning attorneys and financial professionals often recommend that people creating a power of attorney give copies of the signed document to their banks, brokers, insurance agents, and other financial providers right away. Doing so can make it easier for your attorneys-in-fact to act on your behalf in the event you become incapacitated, as they will not need to worry about finding the form and getting the financial institution’s approval before transacting business for you.
You should also let the person or people you named know that they were named. If you choose not to give them copies of the signed form right away, it is recommended that you let them know where they can find the form if they need to use it on your behalf.
As long as you have the mental capacity to make changes, you are in control over who is authorized to act for you. If your wishes about who you want to act on your behalf or about what authority you want your attorney-in-fact to have change after you sign your new power of attorney, you can revoke the document.
If you choose to revoke an existing power of attorney, the revocation must meet your state’s requirements. In most cases, this means the revocation must be in writing and must clearly identify the date of the original power of attorney and the name of the person(s) whose authority you want to revoke. Notice of revocation must be provided to your attorney(s)-in-fact and to any financial institution or other provider who had a copy of the old power of attorney form.
Giving someone else power of attorney over your finances can give you peace of mind knowing that a trusted agent will be able to access your funds and handle your financial obligations if you are alive but are unable to pay your own bills or otherwise manage your own affairs.
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