Chances are good that you have heard about friends and family members using a power of attorney. Planning ahead for a power of attorney before you desperately need one is always recommended.
What Is a Power of Attorney?
The purpose of legally establishing a power of attorney is to prepare for the possibility that you will need a trusted person to act on your behalf financially or in some cases to make medical decisions. Since the rules vary state by state, it is important to know your state’s laws.
The person who is assigned the responsibility to act on your behalf is generally referred to as either an agent or an attorney-in-fact. The legal document details what specific actions your agent can legally take, limiting the scope of their authority. Typically, an agent is required to present the power of attorney paperwork before they will be allowed to act as your agent.
It is worth mentioning that a power of attorney can be revoked. This means you have some control over who your agent is, should you feel it is necessary to assign a new person in the future.
Why Establishing a Financial Power of Attorney Is Important for Seniors
While the idea of giving another person this much power in your life might seem a bit unsettling on the surface, there are situations when it makes sense to have a power of attorney established. For example, many people use an agent to sign papers for them when they are sick or out of town. Having a trusted agent who can act on your behalf makes life more convenient at times.
Another excellent reason every senior should take the time to establish a power of attorney is to avoid a court-appointed power of attorney. If you become incapacitated, then a court will appoint a guardian or committee to manage your affairs. That’s why it makes sense to go ahead and appoint your own agent so that you won’t be stuck with a random person assigned by the court.
General Versus Specific Power of Attorney
One of the decisions that must be made pertaining to any power of attorney designation is whether you want a limited or general power of attorney. The main difference between these two types of documents relates to the scope of power.
As the name suggests, a limited power of attorney restricts your agent to a specific transaction or responsibility. An example of a limited power of attorney would be one that allows an agent to sign the paperwork for a real estate closing. This common use of a power of attorney represents a practical legal tool that alleviates stress through increased convenience in one specific transaction.
In sharp contrast to a limited power of attorney, a general power of attorney allows your appointed agent to perform a variety of duties. This type of broad-based power of attorney is often an integral part of an estate plan, authorizing an agent to pay bills, file taxes, and handle other necessary obligations as they arise.
Major Factors to Consider Before Setting Up a Power of Attorney
1. Naming a Trusted Agent and Successor Agents
This decision is an important one. When selecting an agent, trustworthiness is the most important criterion to consider. Most people choose a spouse or one of their children.
You can also make the decision to choose more than one person to act as co-agents.
If you decide on co-agents, then it becomes necessary to include instructions in the agreement with details about whether a majority rule is acceptable in the event all agents aren’t available.
It is also recommended that you name successor agents that can represent you in the event that the other named agents aren’t available when you need them. Unfortunately, you can’t take anything for granted when drafting this type of agreement. That’s why having a detailed plan in place that covers every possibility is advisable.
2. The Effective Date of a Power of Attorney Agreement
An important question you need to answer is when do you want the power of attorney to become effective. A springing power refers to a document that only goes into effect if you become ill or unable to function. Be forewarned that some states do not allow this type of power of attorney document.
Another consideration worth evaluating is how exactly will you officially be judged to be too ill or incapacitated to function so that the springing power becomes valid. Will you require two doctors to sign off on this fact? Given the stress that accompanies these types of life events, how practical is it to expect an agent to get the necessary doctors’ signatures quickly when you need it?
A durable power of attorney is often chosen as a practical way to go. This type of agreement stays in force as a long-term agreement that can be used before and after an individual becomes incapable of making decisions.
3. Prepare to either pay an attorney or do extensive research before preparing a computer-generated power of attorney.
With so many legal forms accessible online, people often believe they can simply pull up the form and then fill in the blanks in a few minutes to create a power of attorney. It is not that easy. It can take hours to create a valid power of attorney online.
If you can afford one, get an attorney to be on the safe side. Your power of attorney must stand up in court if legally challenged.
The Takeaway
Responsible seniors use a power of attorney as part of a proactive and responsible financial plan. While few people relish the idea of turning over their financial decisions to another person, if the occasion arises, it is preferable to select that person yourself rather than have it done by the courts.