Power of Attorney for an Older Adult's Financial Matters
A financial power of attorney (POA) is a legal document that allows you to manage a loved one's or elderly parent's financial matters. It is also sometimes called a durable power of attorney for finances. It is a type of advance directive that names you as your loved one's agent or "attorney in fact."
As a financial POA, you have a fiduciary obligation to act in your loved one's best interests. This means you may have to make some difficult decisions. As such, problems can arise when family members second-guess these decisions. Such disputes can result in audits of your activities or expose you to liability.
Despite any disputes that may arise, a financial POA is an important long-term care planning document. It ensures that you comply with your loved one's financial wishes if they become incapacitated.
You can create a DIY financial power of attorney document with a loved one at home. But, if their assets or financial situation is complex, you should consult an estate planning attorney for legal advice.
Five Types of Power of Attorney
It is important to understand the differences between the types of power of attorney.
- General Power of Attorney: A general POA gives an agent broad power to make financial, medical, and legal decisions on your behalf. It is generally non-durable, meaning the agent's powers expire upon your incapacitation. You can designate a general power of attorney as durable, but this is less common given an agent's broad powers and control.
- Limited Power of Attorney: A limited power of attorney allows an agent to act on your behalf for specific purposes. Once that specific purpose is fulfilled, the limited POA expires.
- Durable Power of Attorney: A durable POA allows an agent to continue acting on your behalf after you become incapacitated.
- Non-Durable Power of Attorney: A non-durable POA expires when you become incapacitated.
- Springing Power of Attorney: A springing POA goes into effect on the occurrence of a specific event or condition. It can also end at a specified time.
How Do I Take Control of a Loved One's Finances?
Once you have the proper legal authority, you can access your loved one's:
- Bank accounts
- Real estate
- Personal property
- Credit cards
You should also know about Medicare, Medicaid, and Social Security benefits.
It helps to have a list of your loved one's financial assets before this process begins. But gathering accounts and passwords is complicated. This step is complicated further if your loved one is facing memory issues, such as Alzheimer's, or is incapacitated.
Exercising power of attorney shouldn't be fraught with danger or anxiety. It is important to understand your legal obligations and to take steps to document the decisions you make on behalf of your loved one. Doing so will help you feel secure and protected in the event a disagreement among family members results in litigation.
Organizing Finances When You Have a POA
You must keep your loved one's assets and accounts separate from yours. If you mix the power of attorney funds with your finances, it becomes unclear which expenses and funds are yours and which belong to the beneficiary.
Below are some basic tips — but remember that every bank has its own rules and procedures, so check with your local bank before doing the following.
Create a Bank Account in Your Loved One's Name
Opening a separate account to handle all the financial matters concerning your loved one is the easiest way to keep everything organized and separate. Financial institutions often work with powers of attorney and know how to comply with legal documents and state laws.
Take care to keep the beneficiary's finances separate from your own finances, especially if there are questions about your handling of the power of attorney finances down the road. It is extremely difficult to determine which expenses were related to the power of attorney matters after the fact.
Choose Whose Name the Account Is In
Banks differ, but generally, the account should be in the name of the beneficiary. Having the account in the beneficiary's name will distinguish their finances from your own. Since you have power of attorney, you will still have access and control over the account.
How Do I Sign the Checks?
Find out what your bank prefers. In general, you can sign checks in your loved one's name. You must also include the phrase "power of attorney" or "POA" along with your name.
Maintaining a separate account for your loved one makes paying bills and receiving payments much more manageable. It will also help during tax season if the IRS or someone else challenges your power of attorney status.
What Can Happen if I Don't Take Over an Older Adult's Finances?
Finances can become a hazard for older adults as they lose their decision-making ability. Financial scams from nursing home staff or strangers are a real danger, and family members or assisted living staff can conduct financial fraud.
A power of attorney form officially filled out in your state can avoid poor financial decisions or scams due to your loved one's incapacity.
What About Paying for Medical Care?
Once the financial POA is established, all financial affairs will fall under the agent's authority. If your loved one designates someone else as health care power of attorney/medical power of attorney, these two agents must get along and make decisions together.
Remember that older adults often name successor agents, so you may start working with one person and eventually work with another.
Both types of power of attorney must act in the older adult's best interests. An older adult may outline preferred medical decisions or medical treatments in a healthcare directive or living will. The healthcare POA's responsible for ensuring that health providers follow these wishes.
As the financial power of attorney, your job is to financially support these healthcare decisions when you can, push back if you have questions, and use the older adult's funds or benefits to cover costs.
What Is the Difference Between a Power of Attorney, a Will, and a Living Trust?
A durable financial power of attorney is a legal document that goes into effect when a loved one becomes incapacitated through illness or injury. "Durable" means a document still goes into effect when someone can't make decisions any longer. This document will last until someone's death unless the original creator makes changes.
A will is a list of someone's personal property and how they want it distributed after death. While it talks about money and how to divide any leftover money, a will doesn't name anyone as an agent to make financial decisions during their lifetime. A will may name an executor appointed after a probate court proceeding. But an executor does not handle financial decisions while the will's creator is still alive.
A living trust is like a power of attorney in that it allows an agent, or trustee, to act on behalf of the maker of the trust during that person's lifetime. But it differs from a power of attorney because it allows the trustee to continue acting on a person's behalf after death. Also, a trustee only has power over assets named explicitly in the living trust.
Both documents are important and will ease the stress of handling a loved one's affairs after incapacitation or death. A power of attorney is the only way to give a trusted person power to make financial decisions for an older adult.
When To Consider Calling a Local Attorney
Handling a financial estate under power of attorney involves some complicated practical issues. Be sure that your actions are appropriate and won't result in a legal dispute. This could be easy or challenging, depending on the circumstances. Overviews and forms can help you understand some basic principles guiding power of attorney, but they can't ask questions or tailor responses to your specific concerns. Find an experienced estate planning attorney or elder law attorney near you.
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Can I Solve This on My Own or Do I Need an Attorney?
- Complex financial situations usually require a lawyer
- A lawyer can reduce the chances of a family dispute
- A DIY power of attorney document is possible in some simple cases
- You can always have an attorney review your form
Get tailored advice and ask your legal questions. Many attorneys offer free consultations.