There are two types of people—those that plan and those that don’t. And there are also two types of people—those that enjoy doing it themselves and those that don’t. If you are a planner and like to do things yourself, you may be looking into creating a DIY estate plan.
Table of Contents
A comprehensive estate plan has a financial power of attorney, health care power of attorney/living will, and a last will and testament. This article will explain what you need to know when creating a financial power of attorney and what decisions to make.
What Is a Financial Power of Attorney?
A financial power of attorney document is where you name a person, your ‘agent’ or ‘attorney in fact,’ to handle financial matters. Typically, your agent will pay bills, file tax returns, and make financial transactions on your behalf. For example, they could pay your medical bills. However, they can’t make health care decisions for you. You need a health care or medical power of attorney for someone to make decisions about medical treatment for you.
If you don’t have a financial power of attorney and cannot manage your affairs, your family will have to spend time and money petitioning a court to nominate a conservator for you. Conservatorships handle money and property on behalf of the principal.
So while naming someone to act on your behalf when you can’t make your own decisions is helpful, you must know that you are giving someone absolute authority to manage your money and property. However, you can create a POA to control their decision-making authority according to your terms.
Financial Power of Attorney Decisions
Who Is My Agent? Who Is My Backup Agent?
Most importantly, who do you want to handle your financial decisions when you can’t? This is your “agent” or “attorney-in-fact” for financial matters. Who do you want as a backup if your first agent is unwilling or unable to serve? Having someone else step in is a good idea if your first choice is unavailable.
Your agent has broad powers under a general power of attorney. However, they have a fiduciary duty to conduct your financial affairs in your (and your loved ones’) best interest. There should be no conflict of interest, or they may be subject to state law. Your agent could be a family member, friend, lawyer, accountant, or financial institution.
The most important consideration is who you trust as your agent to make decisions on your behalf.
What Powers Do I Want To Give My Agent?
You decide what authority to grant your agent. You can specify what you want your agent to do for you and your family, such as:
- Buying or selling your real property (real estate) and personal property (your possessions)
- Managing your financial investments such as stocks, bonds, and other securities
- Exercising your option rights (right to buy or sell securities)
- Managing your bank accounts and handling all of your banking transactions
- Accessing your safe deposit box
- Taking out a loan to support you and your family
- Managing your business which includes buying or selling a business
- Handling your insurance company transactions
- Initiating a lawsuit on your behalf or defending a lawsuit against you
- Paying your bills, tuition payments, and medical claims to support your family
- Handling your benefits such as Social Security, Medicare, Medicaid, or military benefits
- Managing your retirement accounts and benefits, pensions, and annuities
- Preparing, filing, and paying taxes on your behalf
Your agent acts on your behalf and for your benefit. Depending on your situation, you may want your agent to be able to reduce the size of your estate, either for tax purposes or specialized Medicaid planning. If that is the case, you will need to specifically authorize your agent to have the authority to make gifts and change beneficiary and survivorship designations. For example, you may authorize them to:
- Create, amend, revoke, or terminate a living (revocable) trust
- Make a gift from your assets
- Waive your right to be a beneficiary of an annuity or retirement plan
- Exercise your fiduciary powers
- Authorize someone else to act under your power of attorney
- Create or change rights of survivorship
- Create or change a beneficiary designation
- Make gifts to themselves or to anyone they have a legal obligation to support
A power of attorney can be as limited as you wish.
When Do I Want My Power of Attorney To Start? When Do I Want My Power of Attorney To End?
There are several types of power of attorney forms to consider:
A durable power of attorney means it continues to be effective even during your incapacity.
A limited power of attorney specifies when powers are effective and when they terminate. If you are going on an extended trip, you can designate your agent to serve for a specific time frame. You can also specify what transaction your agent has the authority to manage. For example, you can give your agent a limited power of attorney to handle a real estate transaction in your absence.
A springing power of attorney becomes effective upon a specified event, such as your incapacity.
Do I Want To Compensate My Agent?
Most states allow agents who serve under a power of attorney document to get reimbursement for reasonable expenses. Some states also allow your agent to receive reasonable compensation for acting as your agent. You can specify if you want your agent to get paid. Most family members waive payment, but if you have a friend or professional as your agent, they may want to be paid for their services.
How Will I Finalize My Financial Power of Attorney?
Once you complete your financial power of attorney form, you must sign it before a notary public. Most states require your power of attorney to be notarized. Some states require a notary and one or two witnesses.
Additionally, banks and financial institutions will ask your agent to show the notarized financial power of attorney before they release information to your agent.
How Do I Make a Financial Power of Attorney?
To create a financial power of attorney, you need a written, notarized document stating your instructions and the legal authority you are granting. You can create a form using templates with online legal service companies. These companies guide you through questions so you can create your own financial power of attorney. You save time and money, and it’s convenient to do it from home.
If you have a complicated situation, you may need legal advice from a local estate planning attorney.
Can I Change My Financial Power of Attorney?
Yes, you can change your financial power of attorney anytime as long as it is not a durable power of attorney and you are already incapacitated. One of the advantages of doing it yourself is the ease with which you can change or update your legal forms.
Can I Revoke My Financial Power of Attorney?
Of course, you can revoke your durable financial power of attorney at any time by a revocation in writing. However, if you are already incapacitated, you may not be able to revoke a durable financial power of attorney.
The financial power of attorney ends upon your death. At that time, the probate court appoints the personal representative you named in your last will and testament to manage your estate. The agent’s authority in the financial power of attorney ends.
Tips for Starting Your DIY Financial Power of Attorney
Now that you are ready to make a power of attorney, here are some tips:
- Make your decisions before starting.
- Talk to those people you name as your agent and backup agent. Are they willing to serve?
- Have all your information organized (i.e., names and addresses of agents and backup agents).
- Know the type of financial power of attorney form you need.
- Locate a notary to finalize your legal document. You can Google “find a notary near me” or go to your bank or parcel shipping store, as they sometimes have notaries on hand.
And once you have your financial power of attorney in place, talk to your agent about how you would like them to handle your affairs. Organize information they may need such as your bank accounts, bills you pay, your income sources, etc. Understanding your situation will help them manage your financial life when you can’t.