What is a Financial Power of Attorney, and How Does It Work?

A financial power of attorney is a straightforward method to appoint someone to manage your financial affairs.

A financial power of attorney is a legal instrument that authorizes another person to handle your funds and property on your behalf. These chores might involve paying bills, depositing money in the bank, and collecting insurance benefits, among others. Your attorney-in-fact is the person you name as your agent under your power of attorney.

We never know when something unexpected, such as a sudden accident or sickness, may strike. By appointing someone to handle your funds and property, you may provide peace of mind for yourself and your loved ones if you cannot do it yourself.

Difference Between General and Durable Power of Attorney

The word “durable” refers to the fact that your agent’s ability to act on your behalf while you are incapacitated. In other words, your agent would be capable of making financial choices on your behalf if you could not do so. Many individuals opt to make their financial POA lasting for estate planning considerations.

This enables individuals to appoint someone to manage their money and property if they become incapacitated.

How Does a Financial Power of Attorney Work? 

A financial POA is most often used in the event of a medical emergency. When you are in this circumstance, your everyday financial requirements may take a back seat. You should get and complete a power of attorney form and sign it in front of witnesses as per your state/ country law to activate it.

However, do those requirements vanish just because you are in a hospital bed? Regrettably, they do not. You must still pay your bills. Accounts must be handled, such as rent or mortgage payments, as well as insurance premiums.

The term “financial” is used here. Just as a medical POA is limited to medical decisions made on your behalf, a financial POA is limited to the right for someone else to make financial decisions on your behalf if and when you are unable to do so yourself.

What if something unexpected occurred to you and you could not make an immediate financial decision for yourself? Whether as a result of an accident or an unexpected sickness, the last thing you want is for your long-term financial security to be jeopardized by a momentary setback. With a financial POA, your agent can ensure that your money is handled properly.

As is the case with most legal documents, the primary goal of obtaining a financial POA is to save you and your family from an avoidable court struggle. In this scenario, the goal is to ensure that someone trustworthy is always able to decide what should happen to your money.

When you cannot work, the last thing you want is for an unknown individual to meddle with your financial future! However, this is occasionally the case when you cannot make a financial decision and lack a financial POA. At that point, resorting to the courts to reclaim control may be inevitable.

Who Should Have Durable Financial Power of Attorney?

Yes, if you have debts, funds, and obligations. If you become temporarily or permanently disabled, this enables a person of your choice to manage your financial and personal business on a day-to-day basis.

Without a financial power of attorney, someone may have to go to court to establish guardianship over you, which may be a costly endeavour.

A power of attorney is a critical legal instrument that provides you with significant protection. Because it delegates so much authority to another person, it is critical that you carefully choose your agent, the powers they will get, and the contents of your power of attorney.

How to Choose an Agent?

Let us examine the fundamental legal criteria. Your agent must be of sound mind and have a minimum age of 18 years. While this eliminates minors, you still need to narrow it down more!

When selecting someone to make financial decisions on your behalf, the first essential is trust. Family members may be very effective agents. Additionally, they may be catastrophes.

The natural option for many individuals is their spouse. Appointing the other as an agent in your financial POA makes much sense if one of you often travels for business.

Alternatively, you may know someone outside your family who has superior character and financial acumen. Additionally, they would be an excellent prospect. In any case, choose someone with whom you feel comfortable sharing all you have worked so hard to create over the years.

When Does it Take Effect?

A financial power of attorney may be prepared to take effect immediately upon your signature. You should state that you desire a “durable” power of attorney. If you do not, it will automatically terminate if you become disabled later.

Alternatively, you might state that a power of attorney will not occur until a physician confirms your incapacity. This kind of durable power of attorney is referred to as a “springing” power of attorney.

When does it End?

At the time of your death, your durable power of attorney terminates automatically.

This implies that you cannot delegate power to your agent to manage matters after your death, such as paying your bills, arranging for a funeral or burial preparations, or transferring your property to the beneficiaries. If you want your agent to be able to wind up your affairs after your death, designate that person as your executor in your will.

Also, your durable power of attorney terminates if:

If You Revoke It

You may revoke a durable power of attorney at any time if you are mentally competent.

You are Granted a Divorce

If your spouse is your agent and your divorce, your ex-power spouse instantly terminates. To terminate your ex-power spouse in other states, you must cancel your current power of attorney. In any event, it is prudent to create fresh paperwork immediately upon filing for divorce.

Your Document is Declared Void by A Court

Although it is uncommon, a court may declare your document invalid if it determines that you were not mentally competent at the time of signing it or were the victim of fraud or undue influence.

Conclusion

None of us is capable of forecasting the future. With a financial power of attorney, you can ensure that your property and financial assets are appropriately handled if you become unable to manage them yourself. That being said, do contact your lawyer before making any decisions regarding finances.