FINANCIAL DURABLE POWER OF ATTORNEY
Name someone to take care of your finances for you
What’s In a Name?
A Financial Durable General Power of Attorney is often called a Durable Power of Attorney, or a General Durable Power of Attorney, or a General Power of Attorney. We lawyers love to give different names to the same thing! I will call it a Financial Power of Attorney.
Why Is A Financial Power of Attorney So Important?
Here’s why. No one on the planet, not even your spouse, has the ability to make financial decisions for you, without court involvement, unless you have put that authority in writing.
Let’s say you have a 401K at work. Your spouse is the primary beneficiary. You get in an awful car accident and are loopy on morphine for weeks. Your spouse calls the 401K manager to get information on taking out a hardship loan against your 401K. The 401K manager won’t even acknowledge you have a 401K. Your spouse argues that he/she is the primary beneficiary and your spouse and should have access. The 401K manager will say that without a Financial Power of Attorney, your spouse is what is legally referred to as S.O.L.
Here is another scenario to consider. You and your partner own a house together. You become permanently mentally incapacitated. The house is too big for just your partner, so your partner decides to sell the house. Ah, but just because you are both joint owners does not give your partner the ability to make decisions on behalf of both of you without a Financial Power of Attorney in place.
A Financial Power of Attorney is the key to avoiding the above situations because:
- It names someone to take care of your finances for you. This person is usually called your “agent”.
- It guarantees that your loved ones do not need to go to court to get appointed to make financial decisions for you.
- You are taking care of a very important situation before you are mentally incapacitated and unable to do so.
When Does A Financial Power of Attorney Go Into Effect?
It depends. A Financial Power of Attorney can:
- Go into effect as soon as you sign the document. This appeals to people in the following situations:
- You have been diagnosed with a serious illness and anticipate that handling your finances, while handling the disease treatment, will be too overwhelming.
- You are giving someone Power of Attorney to handle a particular financial situation. For example, you are moving out of the country and giving Power of Attorney to your sister to sell your house.
- You are getting up in years and no longer want to be bothered with the day in/day out aspects of handling your finances.
- Go into effect only if you are mentally incapacitated first. Usually, one doctor, together with your agent, will decide if you are mentally incapacitated. Mentally incapacitated basically means that you are unable to make and understand financial decisions. You are not automatically considered mentally incapacitated if you are eccentric, elderly or physically disabled.
This is the most common form of Financial Power of Attorney. The vast majority of people do not want to give up any power or authority over their decisions unless absolutely necessary.
Please be aware that Financial Powers of Attorney die when you die. I have many people call when someone dies and ask if the deceased’s Financial Power of Attorney means they can continue making decisions. The answer is NO. A Financial Power of Attorney requires that the author is alive in order for the document to work.
Your Agent’s To Do List
Your agent can basically do everything you can do with your finances EXCEPT for one very important difference. You can be a genius or an idiot with your own money. Your agent has to be super smart and super careful not to lose any of your money.
Your agent can only use your money for your benefit.
For example, your agent can use your money to:
- Take care of you
- Take care of your kids
- Take care of your pets
- Pay all of your bills
- Handle issues with your employer regarding your inability to work
- Make sure you don’t go broke while you are incapacitated
- Access your accounts
- Sell your home
- Sell your vehicles
- Retrofit your home to handle your new disability
Your agent is entitled to a fee for the time spent handling your finances. He/she is also entitled to reimbursement for out of pocket expenses incurred. Having said that, many people are uncomfortable charging a fee. The solution? Your Revocable Living Trust or Last Will and Testament can say that your agent should receive X amount as an inheritance, specifically as a thank you for serving as an agent. People may be uncomfortable charging a fee, but most folks find it very hard to turn down an inheritance.