How Does Financial POA Work?

Q: What is a financial power of attorney and how does it work?

A: A financial power of attorney (POA) is a legal document that grants a designated agent the authority to act on behalf of the principal agent in financial matters. The designated agent is often referred to as the attorney-in-fact and the principal agent is often referred to as the “principal.”

Here’s all you need to know about financial POA:

What is the purpose of financial POA?

The primary purpose of financial POA is to protect the principal and their family from a legal battle. The POA ensures that the principal’s finances will continue running smoothly, regardless of what happens to them.

How does a financial power of attorney work? 

Financial POA allows the designated agent to manage all of the principal’s financial matters. This includes paying bills, managing all accounts and investments and signing financial documents.

Financial POA is most commonly used when the principal is out of commission due to a medical emergency. Being laid up in a hospital bed does not mean the principal’s financial accounts are frozen and bills are put on hold. Having a financial POA in place will allow their finances to continue running smoothly until the agent is functioning in their usual capacity.

Which powers are granted to the attorney in a financial POA?

The extent of authority a POA grants can vary greatly, depending on how it’s worded. Most POAs extend the following powers to the agent on behalf of the principal:

  • Make financial decisions
  • Manage the principal’s accounts and investments
  • Manage the principal’s property
  • Conduct financial transactions
  • Collect retirement benefits
  • Pay bills
  • Pay medical expenses
  • Pay taxes
  • Purchase insurance
  • Sell assets

When does a power of attorney become effective?

The circumstances that dictate when a POA becomes effective will vary according to how the POA is worded. It may become effective as soon as it’s signed, or only upon the occurrence of a future event as indicated in the document.

If the document stipulates that the POA is effective immediately, the agent can act upon the principal’s account even if the principal is not incapacitated in any way. This kind of POA is often used for an agent to represent someone who travels often and may not be physically present to make important financial decisions.

Usually, though, a POA only becomes effective if the principal can no longer manage their own finances because they have become incapacitated, or one or more doctors have certified that they are physically or mentally unable to make decisions. This can be due to mental illness, a medical emergency, the onset of dementia, or any other event that renders the principal unable to function as usual.

In some states, a POA automatically becomes effective when the principal is incapacitated, even if this is not indicated in the contract.

When does a power of attorney end?

The authority conferred by a POA will always end upon the death of the principal.

Unless otherwise indicated in the contract or state law says otherwise, the POA also ends if the principal becomes incapacitated. If the authority continues after incapacity, it is called a durable power of attorney, or a DPOA.

A POA can also end if the principal revokes it, a court invalidates it or the agent is no longer able to represent the principal. In some states, the POA also becomes invalid upon divorce if the agent is a spouse.

What are the potential consequences of not appointing a POA? 

If an individual becomes incapacitated for any reason and they have failed to appoint an agent to act on their behalf, their financial matters will generally be left up to the government of their home state. If there are family members who want to step up, they will need to go through the courts to gain legal control of the principal’s finances. Generally, though, when someone does not have a durable power of attorney and becomes incapacitated, their financial accounts and assets will automatically revert to the state.

Can anyone be granted power of attorney? 

Most states have very few guidelines for who can serve as a financial agent. The only general stipulations are that the document be signed, witnessed and notarized. Of course, it’s best to choose someone you trust to responsibly manage your finances in your stead.

If you’re looking to set up a POA, we can help. Reach out to us at 734-676-7000 or shoot us a line at news@myaocu.com to talk about your options.

Your Turn: Have you drafted a POA? Tell us about it in the comments.

Learn More:
investopedia.com
daveramsey.com
legalzoom.com
legalnature.com

The Most Important Documents for Unmarried Couples

Two documents that no couple should be without

If you were incapacitatedDocs_Featured in any way, and someone else had to make important financial or health-related decisions for you, who would you choose? The next important question to ask yourself is if that person would be legally able to step in and make these decisions.

It is important for unmarried couples to realize that their partner doesn’t automatically have the same legal rights that married couples do, even if they’ve been living together for many years. In order to ensure that your wishes are carried out in the way you want and by whom you want, you need to set up two important documents: a durable financial power of attorney and a healthcare proxy (also known as a power of attorney for healthcare).

Setting up a healthcare proxy is the most important step that unmarried couples can take to protect their ability to speak on their partner’s behalf in medical situations. Without these documents, you or your partner might find yourselves unable to take part in important decision making that can affect you both. Furthermore, if you aren’t established as each others healthcare proxies, you may not even be allowed to visit at the hospital since you aren’t legally family.

Setting up a financial power of attorney is also a critical step that unmarried couples need to take. Couples that have been together awhile tend to combine finances, especially if they live together. If your partner becomes incapacitated, you may not be able to make financial decisions on your partner’s behalf, even if those decisions have a dramatic impact on your own finances.

“A court may grant a family member authority to make decisions about your partner’s finances,” states Sandra Block from Kiplinger’s Personal Finance.

You may assume that your partner’s family will respect your relationship and allow you to have a say in the decision making process, but that is a risky prospect to gamble upon. Furthermore, times of emotional stress can make people act in unpredictable ways. So even if your partner’s family tells you that they will defer to your opinion in medical or financial situations, you can’t depend upon them acting in a predictable manner and not changing their mind.

Even if you do have a power of attorney set up, if you haven’t read the conditions carefully, it may not include everything you think.

“When it comes to powers of attorney, just because you have one does not mean that it covers both healthcare and financial decisions, unless it specifically says so,” according to Investopedia.

“An estate-planning lawyer can help you draw up power-of-attorney documents…” states Sandra Block. “Some banks and brokerage firms won’t honor power-of-attorney documents unless they meet certain conditions, so make sure the form you use will be accepted by your financial institutions.”

It is also important to make sure that your family knows who you have selected as your financial and healthcare power of attorneys, so that there is no delay in seeking that person out in the event of an emergency. Also, relevant documentation should be in a safe and easily accessible location, with multiple copies in convenient and safe locations.

Once you set up these important documents, you will feel much safer knowing that you and your partner will have their rights and wishes protected.

Used with Permission. Published by IMN Bank Adviser Includes copyrighted material of IMakeNews, Inc. and its suppliers.