WHAT IS A POWER OF ATTORNEY?
A Power of Attorney for Financial Affairs gives your designated agent(s) the authority to make legally binding financial decisions and transactions on your behalf, usually when you cannot manage your own affairs due to incapacity.
Business owners will often execute a Power of Attorney exclusively for the management of their business interests, apart from their personal finances, and often with different agents designated for personal and business affairs.
WHEN DOES IT TAKE EFFECT?
A Power of Attorney can be made to take effect immediately upon execution, or more commonly, upon your incapacity (a “springing” power). Generally a springing Power of Attorney takes effect when you have been declared by a medical doctor to be incapable of managing your financial affairs due to a medical condition.
A “durable” Power of Attorney remains in effect during a period of incapacity, and most people have a “springing durable Power of Attorney”. However, the Power of Attorney can also be structured in such a way as to be in effect ONLY while you are mentally competent, which provides the ability for you to oversee what is being done on your behalf, denying your agent the authority to manage your affairs during a period where you are incapacitated.
Care should be taken to design your Power of Attorney to meet your individual needs and circumstances.
HOW LONG DOES IT LAST?
The durable Power of Attorney for financial affairs lasts until either:
* You recover from your temporary incapacity;
* You revoke the Power of Attorney; or
* You die.
WHY DO I NEED ONE?
If you own any financial assets in your own name alone, without a joint tenant or an authorized signer, no one is legally authorized to access those accounts to make management or withdrawal decisions on your behalf in the event you become incapacitated.
Also, IRAs and 401k’s are individually owned assets, and even if you are married, you cannot access your spouse’s IRA or 401k (to make management or withdrawal decisions) without being authorized to do so under a Power of Attorney. Similarly, your spouse cannot access your IRA or 401k in the event you were to become incapacitated without a Power of Attorney in effect.
ARE THERE ANY RISKS?
Yes. The Power of Attorney for Financial Affairs is a very powerful legal instrument that gives your agent the authority to access your financial accounts and records and make legally binding financial transactions on your behalf.
While your agent is required by law to operate in a “fiduciary” capacity (meaning they must manage your financial affairs for you and in your interests), if you have not selected your agent wisely you run the risk that they will use your assets for some other purpose or for their own benefit. While this is against the law, it can take time to prosecute someone for such illegal behavior and recover any funds improperly taken from you.
Copyright 2009 Dan H. Burcham, used with permission.