A financial power of attorney, or durable power of attorney for finances, is a reliable yet simple and inexpensive way of arranging for someone of your choice to manage your finances if you cannot make the necessary decisions for any reason. The financial power of attorney not only passes the decision-making authority to your nominated person but also enables your family to avoid approaching a court to obtain authority over your financial matters if you become incapacitated.
When Does a Durable Power Of Attorney for Finances Take Effect?
You can prepare a financial power of attorney to take effect immediately after you sign it. Many people give the power of attorney to their spouses to ensure the smooth handling of financial matters in case something happens to one of them or if they are physically not present to take the necessary decisions themselves. However, unless the power of attorney in such cases is specified as “durable”, in most states, the law terminates it if you become incapacitated.
You can instruct your lawyers for financial power of attorney not to allow financial power of attorney to take effect unless you are certified by a doctor as incapacitated. This arrangement permits you to remain in control of your finances until you cannot make the decisions yourself anymore. When a doctor certifies your incapacity, the power of attorney springs into effect. It is why it is also known as “springing” durable power of attorney. According to Forbes, a durable power of attorney is more difficult to use.
Responsibilities of the Holder of the Power of Attorney
When you execute a durable power of attorney, you give another person legal authority to act on your behalf. The term used for the holder of power of attorney is agent, but in some states, he is called the attorney-in-fact. Usually, the durable power of attorney gives the agent sweeping powers to handle your finances, however, should you wish, you can specify only the powers, you wish to pass on. Typically, these include paying for your family’s day-to-day expenses from your assets, buying, selling, maintaining, mortgaging real estate, investing your money, handling transactions with financial intermediaries, buying and selling insurance policies and products, etc. You may also authorize him to file your tax returns, pay taxes, and manage your business. He can claim property you are entitled to, transfer property to a trust you have created, hire a lawyer to represent you in court, and manage your retirement accounts. Overall, the agent must maintain accurate records, keep your property separate from his, avoid conflicts of interest, and always act in your best interest.
Your death ends the durable power of attorney; however, you can authorize your agent to perform specified tasks to wind up your affairs by executing a will that names that person as the executor. You can also revoke a power of attorney as long as you are mentally competent. The power of attorney also ends if a court of law declares the document invalid. If your spouse is the agent, a divorce nullifies it in some states while, in others, you may have to revoke the power of attorney.