When to Seek a Financial Power of Attorney?

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When you think about a financial power of attorney, you might think that it is something for rich, old, or ill people. While this can be true, there is a lot more to the matter of financial power of attorney. A power of attorney (POA) is actually a flexible legal contract that allows the person who creates the document to transfer financial power for a specific task, for multiple specific tasks, or into the future (in the event of his or her incapacitation). In other words, a financial POA can be for a one-time event, for every financial matter, or for anything in between.

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Financial Power of Attorney: The Basics

Financial power of attorney might sound complicated –however, the basics are quite simple to understand. Consider the following:

  • A financial POA grants someone else the ability to make financial decisions on your behalf (within the parameters you set).
  • If you have a financial POA, you are its principal.
  • The person whom you assign to carry out financial duties on your behalf is known as the agent or the attorney-in-fact.

Do not let the legal terms frighten you away, your financial POA simply specifies whom you want to make financial decisions if the situation specified in the POA comes to pass.

Financial Peace of Mind

The most common reason for implementing a financial POA is to specify what should happen in the event of a medical emergency. If you are in the midst of the chaos of an emergency medical event, it is very likely that you will be incapable of attending to your regular financial needs, but the needs themselves will not disappear.

Your bills, mortgage, and financial accounts will remain active, and there will be payments and decisions that need to be made. You do not want a temporary setback to derail your financial future –and if the setback ends up being more than temporary –you do not want your family’s financial future to be derailed in the interim (while they tend to the grief associated with your incapacitation). When you have a financial POA in place that names a financially savvy agent whom you trust to manage your finances, it can provide you with the peace of mind you need to focus on recovering your health and well-being –without the nagging anxiety of tending to financial details.

How Your Financial Power of Attorney Works

Once your POA is executed (written, signed, and notarized), you will need to keep a copy in a safe place and provide your agent with the original. It is also a good idea to give a copy to everyone whom you want to know what your wishes are –your spouse and/or specific family members, for example. Your agent will present the financial POA to any third parties involved (your bank, for instance) when the time comes to exert his or her financial authority.

Powers of Attorney: Beginnings and Endings

Powers of attorney generally go into effect either immediately upon execution or upon some future event that is specified in the POA (often referred to as springing power of attorney –because of the way it springs into action when the precipitating event happens). The most commonly cited event that springs power of attorney into effect is if the principal becomes incapacitated, which means that one or more physicians certify that he or she is either mentally or physically incapable of making important financial decisions going forward. Common causes include:

  • Being in a coma
  • Suffering from debilitating dementia
  • Being unable to communicate

One’s POA automatically ends when the principal dies. Only a durable power of attorney extends beyond one’s incapacitation, which is why most financial powers of attorney are durable (unless they are specifically set up for making financial decisions in your absence –or in other discrete financial instances). The authority granted by a financial POA also ends in the following situations:

  • The principal revokes the authority granted.
  • A court invalidates the authority granted.
  • The agent is no longer able to do the job, and there is no alternative or successor agent assigned.
  • The agent and principal are spouses, and they divorce.

Authority Granted to Those with Financial Powers of Attorney

Those who have a financial power of attorney in the U.S can be granted the authority to address all of the following matters:

  • Accessing your safe deposit box
  • Attending to your business operations, such as running your small business
  • Making gifts to charities or individuals in your name
  • Managing government benefits, including Medicare, Social Security, and unemployment compensation
  • Addressing any legal claims and litigation you are involved in
  • Attending to your tax matters
  • Managing your retirement accounts
  • Dealing with transactions that relate to banking and other financial institutions
  • Dealing with transactions that relate to estates, trusts, and other financial instruments with beneficiaries
  • Dealing with transactions that relate to insurance and annuities

The more complicated your financial situation, the greater your possible need for a financial power of attorney in the U.S.

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