Financial Power of Attorney

A Financial Power of Attorney lets someone you pick make financial decisions for you. You can also limit their power and how they make choices for you.

The section below provides helpful links to relevant topics:

The person who signs a Power of Attorney is called a "principal" or a "grantor." The person who is granted decision-making authority is called an "attorney-in-fact" or an "agent."

The type of Power of Attorney document you draft determines:

• When that person has the authority to act on your behalf
• How long that person can act on your behalf
• What kinds of actions they can take

This page will focus on using a POA for financial decisions.

Who Might Need a Financial Power of Attorney?

Anyone could become incapacitated at some point in their lifetime. A financial power of attorney is a useful document to have in every estate plan.

This legal document is used most often to ensure financial care for:

• An elderly parent whose physical or mental capacity may be waning
• A sibling or family member with a severe disability or a physical or mental illness
• A child without parents or whose parents cannot care for them so they are in the care of another

Do I Need a Financial Power of Attorney or a Guardianship?

A person can only sign a Power of Attorney if they are of sound mind. If you become mentally incompetent, it is possible:

• Any legal document you sign can be declared invalid
• You will not be allowed to sign a legal document at all

If you have not authorized someone to make decisions for you then no one has the legal authority to manage your financial affairs. Bills may go unpaid. You could lose your home.

Often, family members or a friend will step in to help. They may seek guardianship of an incapacitated or mentally incompetent person.

Guardianship is a legal process that requires going to court and proving incapacity. It can take time and money. Other family members can also contest guardianship cases.

If a Power of Attorney has previously been signed, it becomes effective immediately once a person is judged to be incompetent. Having this document in place ensures:

• The person managing your affairs is the person you wanted
• Your family members save time, money, and heartache in the process

What Can I Do With a Financial Power of Attorney?

A durable, general Financial Power of Attorney allows your agent to handle a wide range of financial matters. In this context, "durable" means it stays in place after you are incapacitated.

The person you choose as your Financial Power of Attorney can handle matters such as:

• Writing checks and paying bills
• Buying or selling furniture, a car, or a home
• Cashing Social Security checks, rent checks, or other income you receive
• Managing your investments
• Operating your business
• Talking with your accountant, your investment advisor, and the IRS on your behalf
• Filing your taxes

You can also temporarily give someone these powers. You may want to give someone limited Financial Power of Attorney if:

• You are leaving the country for a limited time
• You need an agent to collect rent, pay bills, and handle other day-to-day financial affairs in your absence

Financial Power of Attorney for Older Adults

One might give Financial Power of Attorney to an adult child if an older adult parent is having trouble understanding their finances and paying their bills on time.

Fraud schemes targeting older adults and adults over 65 have exploded in recent years. Adults who have been the victim of fraud may feel more secure with a family member watching out for their finances.

What Can't I Do With a Financial Power of Attorney?

A few limitations are baked into the role of Power of Attorney. The person named as the attorney-in-fact cannot:

• Change the grantor's will
• Transfer or grant the Power of Attorney to someone else once that duty has been accepted. The exception is when the grantor already named an alternate or successor agent. (A person can decline to be appointed.)
• Make decisions for the grantor after his/her death
• Act in one's own self-interest. A person with Power of Attorney authority has a fiduciary duty to act in the best interest of the grantor. Failing to do so could leave the agent open to a lawsuit.

What Can I Do With a Will That I Can't Do With a Power of Attorney?

The authority granted by a Power of Attorney document ends upon the death of the grantor. That's when the person's last will and testament goes into effect.

After death, the executor or personal representative takes charge of decision-making for the estate.

If the person dies without a will, the agent who holds the Power of Attorney can petition the probate court to be named as administrator of the estate.

How Long Does a Financial Power of Attorney Last?

We could also ask the question this way: “What is the difference between a "durable" and a "limited" Power of Attorney?"

A durable Power of Attorney gives the agent authority to make decisions immediately after the grantor signs the document. That authority continues until the grantor's death or until the document is revoked.

A limited Power of Attorney:

• Begins when certain conditions exist
• Ends when those conditions end or upon the death of the grantor

Those conditions are defined in the terms of the legal document.

For example, a grantor might give someone authority to purchase real estate for them in another state. That authority may end when the purchase is complete. Or a Power of Attorney may go into effect when the grantor becomes incapacitated and continue for as long as they are incapacitated.

It's important to define the conditions of a limited Power of Attorney as clearly as possible to prevent misunderstandings and potential legal challenges.

What Are the Requirements for a Valid Power of Attorney?

A legally valid power of attorney requires only a few specific things:

1. That the document be dated
2. That the document be signed by the grantor or by another person under the direction of the grantor and in their presence
3. That the document be signed by a notary public and/or signed by witnesses

Also, you cannot assign power of attorney to a child under 18 years of age, or a convicted felon.

Once these minimal conditions have been met, the remainder of the document should:

• Define the decisions and actions the agent will be authorized to make
• List any limitations on their actions
• Define the conditions of when it goes into effect

In simple situations, you can create a Financial Power of Attorney from home with a DIY form. Just make sure you pick one for your specific state and follow the directions.

You may want help creating a POA from an estate planning attorney if your situation is complex, or to ensure you thought through all of the potential circumstances.

Estate planning lawyers are trained to help people make these decisions. They have often seen the unintended consequences of poorly drafted legal documents. You can browse lists of attorneys that focus on estate planning and find the right one for you.

Other Types of Power of Attorney

It can be helpful to know the different types of POAs to understand which one may be right for you. There are six types of power of attorney. Or, more accurately, six characteristics of a power of attorney.

Two types relate to when decision-making authority begins. Two relate to the scope of authority given. And two relate to specific kinds of decisions that the agent can make.

1. Durable Power of Attorney Basics

Once signed, a durable POA remains in effect until the grantor revokes the legal document or the grantor dies.

If you cannot make decisions for yourself, the person you have granted that authority can immediately do it for you.

2. Springing Power of Attorney Basics

A springing POA takes effect (or springs into action) when certain conditions happen. A clause in the POA defines those conditions.

Unlike a durable power of attorney, this type of POA doesn't become effective until you have been declared incapacitated or incompetent. There may be a critical lag time before it takes effect.

3. General Power of Attorney Basics

This kind of POA allows the attorney-in-fact to act on any matter allowed by state law.

They can act as your agent to sell your property, manage your bank accounts, or manage your legal affairs. (See below to learn what they can't do with a power of attorney.)

4. Limited Power of Attorney Basics

This type of POA gives your agent authority to perform specific tasks for a specific time.

5. Financial Power of Attorney Basics

A financial POA allows your agent to make financial decisions on your behalf.

6. Medical Power of Attorney Basics

A healthcare power of attorney allows your agent to make healthcare decisions and end-of-life decisions on your behalf.

This is not the same as a living will. A living will lays out your preferences for medical treatment, including medical care you do not want to receive.

Instead, medical power of attorney gives your agent authority to actively make medical decisions informed by your preferences and guided by your medical providers.

How Can I Help a Loved One Make a Power of Attorney?

You can draft your own power of attorney form or help a family member create their own power of attorney. Visit FindLaw's Estate Planning Legal Forms and Services for a customized form you can complete in minutes.