A power of attorney (POA) is a legal document where you name someone you trust as your agent or attorney-in-fact to make your financial decisions and handle your legal matters when you cannot do so yourself.
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There are many different types of power of attorney documents. A limited power of attorney may only cover a real estate transaction, while a durable power of attorney continues when you are incapacitated.
If you do not have a power of attorney and you are either physically or mentally unable to manage your financial affairs, your loved ones will have to go to court to petition for a conservatorship. A court then appoints a conservator to handle your affairs. Having a power of attorney eliminates the need for a conservatorship.
In this article, you’ll learn how to choose an agent, decide what authority to give, determine when you want your power of attorney to be effective, and draft and execute a power of attorney to make it valid.
1. Name an Agent for Your Power of Attorney
Because an agent can act on your behalf and bind you to contracts, you must choose someone you trust. When selecting your agent, you should also consider if they are responsible, organized, and able to handle the responsibilities. Your agent has a fiduciary duty to act in your best interest and to handle your financial matters to benefit you and your family.
Who Can Serve as My Agent?
Your agent must be a competent adult and can be a family member or friend. You may even consider using an accountant, lawyer, bank, or financial institution to serve as your agent if you do not have any suitable choices.
Should I Name Co-Agents?
Avoid using co-agents in a power of attorney. For example, a parent may want to name all their children as co-agents to avoid hurt feelings, but that gets tricky. Either all the agents must act together, which is problematic if one disagrees with a course of action. Or the agents can act independently of one another, which can be confusing and result in chaos when decisions are reversed. It is a better idea to name one person as the primary agent and name backup or successor agents if the primary agent is unwilling or unable to serve.
2. Decide What Powers To Give Your Agent
An agent under a power of attorney only has legal authority to do what you authorize them to do. Typical responsibilities include accessing your bank accounts, bill paying, filing tax returns, and providing for family support. In your power of attorney document, you specify what powers you want to give your agent, such as the power to handle transactions involving:
- Real property (real estate)
- Tangible personal property (personal possessions)
- Stocks and bonds
- Commodities and options
- Banks and other financial institutions
- Operation of entity or business
- Insurance and annuities
- Estates, trusts, and other beneficial interests
- Claims and litigation
- Personal and family maintenance
- Benefits from governmental programs or civil or military service
- Retirement accounts
- Tax matters
- Gifts
You must specifically authorize your agent to handle certain powers, such as making changes to a trust, changing beneficiaries, or delegating authority. Think about what you want your agent to be able to do and what powers they need to do it. Generally, your agent cannot make your medical decisions; you need a health care power of attorney to do that.
Do I Have To Pay My Agent?
Generally, your agent is your family member or friend and wouldn’t expect or ask for payment. However, you may want to make sure they can receive reimbursement for any expenses incurred in handling your affairs. You may also consider allowing them to receive reasonable compensation for their services.
3. Decide When Your Power of Attorney Is Effective
In most states, you decide when your power of attorney is effective. Generally, a power of attorney starts upon the signing of the power of attorney, but you can specify a certain date or event when your power of attorney begins, called a “springing power of attorney.” For example, you can have a power of attorney effective during a time when you are out of the country. Or a power of attorney can begin upon a doctor declaring that you have a mental or physical incapacity and can no longer handle your affairs.
4. Draft Your Power of Attorney
You can create a power of attorney form yourself using online legal resources like FindLaw’s do-it-yourself forms. If you have questions or need legal advice, you can find an estate planning attorney with FindLaw’s lawyer directory.
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5. Execute Your Power of Attorney
The last step is critical. You need to make your power of attorney valid by signing it according to your state laws. You can find your state laws in FindLaw’s State-By-State Making a Power of Attorney FAQs. Most states require a notary public to attest to your signature, so make sure you sign your financial power of attorney in front of a notary.
What To Do After Making Your Power of Attorney
Give a Copy to Your Agent
Give a copy of your document to your agent with instructions on where to find the original. Keep your original executed power of attorney in a secure place, such as a waterproof and fireproof box. Avoid storing it in a bank safe deposit box because your agent may not be able to access it. You may also want to give copies to your backup agents.
Communicate With Others
You may want to let your loved ones know who you are putting in charge of your decisions when you need help. This can avoid misunderstandings and hurt feelings. Additionally, you may want to give detailed instructions to your agent(s) on what property and accounts you own, what financial responsibilities you have, and how you would like them to handle your money and property. Finally, you may want to share this document with banks and financial institutions you deal with so they know your agent has the authority to act in your place.
Change Your Power of Attorney if Necessary
If you change your mind about who you want as your agent or what you want them to do, it is easy to revoke your power of attorney and create a new one. When revoking your power of attorney, make a written statement of revocation and deliver it to your agent(s) and any third parties who have been notified of your original power of attorney.
Consider Other Estate Planning Documents
Once you have completed your power of attorney, think about other estate planning documents that can benefit you and your family. A last will and testament is a legal document where you identify your property, choose beneficiaries of your estate, name someone as a personal representative or executor to manage your estate, and name guardians for your children and caregivers for pets. A health care directive and living will document lets you appoint a health care agent or proxy to handle your health care decisions and follow your instructions for medical treatments and end-of-life care.
A power of attorney is valuable when you are suddenly unable to manage your affairs. It secures you and your loved one’s support and maintenance. By following the steps in this article—naming an agent, giving them authority to handle specific tasks, deciding when it is effective, drafting your power of attorney, and making it valid—you can rest assured someone is there to step in when you need help.
