Do you have a financial power of attorney? Having one would allow you to choose someone you trust to handle your affairs when you can’t. It is a written legal document that gives another person — your “agent” or “attorney in fact” — the ability to make binding legal and financial decisions on your behalf. Without a power of attorney, if you become physically or mentally unable to manage your affairs, your family may have no choice but to ask a court to appoint a guardian to handle those affairs. This can be a time-consuming, unpleasant, and expensive legal process. Regardless of your age or health, it is important to plan now for the unexpected.
There are several important questions you should consider when preparing a financial power of attorney:
“What type of power of attorney do I need?”
A durable financial power of attorney takes effect when you sign it and remains in effect during your lifetime, even if you become incapacitated. You are not giving up the ability to handle your affairs, just ensuring your agent will have the ability to act when necessary.
A springing power of attorney begins when a specific event happens, such as when you are declared incapacitated by a licensed physician. The problem with a springing power is that someone must decide that the triggering event, i.e. your incapacity, has occurred. This can lead to disputes and impose an impediment to the use of the power of attorney, perhaps at the time you need it most.
Regardless of which type of power of attorney you choose, you can revoke the power of attorney at any time and it ends at your death.
“Who should be my agent?”
You should choose someone you trust completely: a spouse, close family member or professional advisor. Don’t make the same mistake as wealthy socialite Brooke Astor, whose own son was convicted for stealing millions as her agent. Financial exploitation is a real and dangerous problem, and if you have concerns about a specific individual, you should consider naming someone else. Your chosen agent should be capable of handling the required duties and keeping accurate records. You might also consider naming joint agents (you may require them to act together), and it is wise to name a substitute agent to serve in the event your primary agent is unable to do so.
“What powers should my agent have?”
You should consider authorizing your agent to take any financial actions you could take, e.g. banking, investments, real estate, taxes and insurance. The document should permit your agent to access electronic records and online accounts, as appropriate. It is important to consult with an attorney if you desire to give your agent the power to make gifts and/or do estate planning on your behalf. It may be important for your agent to have these powers to react to changes in the gift and estate tax laws. Additionally, many states require special language in power of attorney documents to permit an agent to make gifts in excess of limited amounts or to the agent himself or herself, or to change beneficiary designations for life insurance and retirement benefits.
“Is my power of attorney valid in every state?”
Not necessarily. Do not assume that a power of attorney signed in one state will be valid in another. For example, if you live in Pennsylvania, but maintain a second residence in Florida, be sure that your power of attorney meets the requirements for both states. Finally, financial institutions may attempt to require their own forms in addition to a power of attorney. Read any such forms carefully before signing.
We recommend that you act now to put a power of attorney in place, or review existing powers of attorney to ensure that they are valid and meet your current needs. Pennsylvania Trust’s knowledgeable and experienced team of trust professionals is available to assist you with this process. In the next issue of Trust and Investment Perspectives, we will discuss the importance of healthcare powers of attorney and living wills.
– by Leslie Gillin Bohner, Esq.
Ms. Bohner is Senior Vice President and Chief Fiduciary Officer at Pennsylvania Trust.