Whether due to disability, dementia, or simply enjoying an exotic vacation, there are many ways you can end up unavailable to make critical financial decisions for yourself or your loved ones. If you have not documented your desires in advance, it can add extra stress for everyone, plus the outcomes may not be what anyone had in mind.
One source of confusion over when and how to protect what’s yours is understanding which legal logistics apply during your lifetime, and which don’t come into play until after you pass. The financial power of attorney is a tool for protecting your interests while you are alive:
The Basics.
A financial power of attorney (POA) is a legal document authorizing someone (your “agent”) to make financial decisions on your behalf. No matter how much authority you grant an agent, they still owe you a fiduciary level of care, which means any decisions they make for you must be based on what they believe to be in your best financial interests.
When It Applies.
A POA applies while you are alive, but unavailable to act for yourself. You can structure it to:
- Begin immediately or upon a triggering event (such as a debilitating accident or illness)
- Remain in force during a finite time period or be ongoing
- Apply to all your financial matters, or only to specific transactions
Common Scenarios.
A financial POA can be helpful to address:
- Capacity: If you become incapacitated due to illness, injury or dementia.
- Availability: If you’re unable to be present for a financial transaction, such as if you’re traveling abroad or you’re otherwise preoccupied.
- Convenience: If you’d simply like to make it convenient for someone else to be able to make financial decisions for you – such as your spouse or a trusted sibling (in general), your parents (if you’re heading off to college), or your adult children (if you’re aging).
Additional Tips.
- Again, anyone to whom you grant a POA is only your legal agent while you are alive; their authority ends the moment you pass away. Your estate’s trustees should take it from there.
- Your agent(s) should have access to the documents that describe the POA you’ve granted them. If they can’t prove what their role is, they may not be able to act on it when needed.
- Some banks and account custodians have their own POA forms they would prefer you use; also, they may be wary of POA paperwork that is several years old. Check with the financial institutions you frequent about their policies, and consider annually reestablishing any durable POAs, to ensure they remain relevant.
- You cannot grant a POA if you are deemed to be of unsound mind. This makes sense, since you may inadvertently name a “bad” player … or others may be able to contest the POA you’ve established. Don’t wait until it’s too late.
Andrea L. Blackwelder, CFP®, ChFC, CDFA® and Joseph D. Clemens, CFP®, EA are the founders and partners of Wisdom Wealth Strategies. Their shared passion is simple: to bring financial empowerment, understanding, and peace-of mind to people who wish to improve their financial future, build wealth for their families, and achieve financial independence. Click here to find out more about how you can work with the Denver Financial Advisors at Wisdom Wealth Strategies.