Many clients wonder “What is a durable financial power of attorney?” You can grant financial power of attorney to another person to act on your behalf, but that authority will normally expire if, or when you are mentally incapable of making your own decisions. A “durable” power of attorney includes language that specifically allows it to endure, even if you become incapacitated. When preparing documents to arrange for the future, possible incapacity is one of the most important events to consider.
Let’s discuss the most commonly asked questions regarding Financial Power of Attorney’s
- What is a Financial Power of Attorney responsible for? What does financial power of attorney do?
- Can a Financial Power of Attorney Sign a Tax Return?
- Is a Power of Attorney still valid after death?
- Is a Financial Power of Attorney Responsible for Debt?
- Why have a Financial Power of Attorney?
- Does a Financial Power of Attorney Override a Spouse?
- Can a Financial Power of Attorney Change Beneficiaries?
- Can a Financial Power of Attorney Make Medical Decisions?
- When does Financial Power of Attorney Start? When does Financial Power of Attorney End?
- Will v. Financial Power of Attorney
- Who Signs a Financial Power of Attorney?
- Who Should Be a Financial Power of Attorney?
- How do I Obtain a Financial Power of Attorney for My Parent?
When you choose a financial power of attorney, you name someone to act as your agent to make financial decisions on your behalf. That person’s specific powers should be delineated in a Power of Attorney document. It can be as broad or as limited as you specify. For instance, you could grant someone the specific authority only to sell your car. However, “General Durable Financial Power of Attorney” usually grants an agent broad powers and responsibilities to handle your financial affairs. Often, an agent acting with financial power of attorney can access your bank account, keep bills paid, buy and sell on your behalf, and represent you in financial matters. He or she can file and sign your tax return. An agent acting with power of attorney has a fiduciary, or, ‘good-faith’ duty to always act in your best interests.
Someone acting on your behalf with power of attorney can file and sign your tax return for you. The IRS has a short process to identify someone appointed as a Power of Attorney. Some states will have a similar process. These allow your Financial Power of Attorney to handle your tax return. A CPA can help with that arrangement.
Is a Power of Attorney still valid after death?
When someone who grants a power of attorney passes away, that power of attorney is no longer valid. Power of attorney is only authority to act on behalf of a living person. When that person passes away, all their financial concerns become matters of their Estate. A person’s Estate is managed by an Executor or Personal Representative appointed by their Will. The decisions made by someone with power of attorney before the principle person passed away are still valid and binding after the principle person passes. However, it is illegal for a person with power of attorney to act in that capacity if they know the principle person has passed away.
Is a Financial Power of Attorney Responsible for Debt?
A person acting with power of attorney, or agent, is not personally responsible for the debts of the principle person. They are responsible to do what is most reasonable with the resources of the principle person, and to act in their best interests. But, if the resources of the principle person do not cover all their debts, the agent is not personally responsible to cover them.
Why have a Financial Power of Attorney?
Because we cannot predict the future, there is no way to know if or when we will need help with our financial affairs. A sudden illness or accident can quickly remove capacity to make decisions or meet obligations. Often, a person who has not appointed anyone with power of attorney is suddenly thrust into such unexpected circumstances, and no one can legally step in to assist them. In those cases, others must petition the court to appoint a guardian and/or conservator to make decisions for that person and handle their affairs. And, that guardian and/or conservator must always work under supervision of the court. When you have a financial power of attorney named, if an accident or illness removes your capacity to make decisions, you know that someone you chose and trust is already authorized to assist you without the court being involved.
Does a Financial Power of Attorney Override a Spouse?
Generally, yes. When someone, the principle person, appoints another with power of attorney, the agent, they give them authority to represent their interests. Where no appointment has been made, many parts of society will turn to the spouse for decisions. However, a spouse does not inherently hold a legal power of attorney. Where an appointment with power of attorney has been made, that authority overrides all others regarding the principle person’s interests. Spouses often share ownership of assets, such as a house, or deposit account. An agent appointed with power of attorney would likely share decision making with the spouse regarding those assets, just as the principle person did. However, it is overwhelmingly the case that when a married person appoints a power of attorney, they usually appoint their spouse.
Can a Financial Power of Attorney Change Beneficiaries?
Usually, financial power of attorney does allow your appointed agent to change beneficiary designations. This may occur on a bank account, or insurance policy. Most of the time, the financial institution only needs notice of your appointment. This is normally accomplished by giving them a copy of the Financial Power of Attorney document. However, not every financial institution has the same policies regarding power of attorney. Some have their own forms and their own process for such an appointment.
Can a Financial Power of Attorney Make Medical Decisions?
A document granting power of attorney should specify the authority granted to the agent. Anyone acting with power of attorney only has the powers specifically identified in the document. Generally, an appointment of financial power of attorney does not grant authority to make medical decisions. Although a Power of Attorney document can be written broadly enough to include decision-making power for medical and financial decisions, the two are separate powers. In many states, the requirements for appointing a medical power of attorney are different than those for appointing a financial power of attorney.
When does Financial Power of Attorney Start? When does Financial Power of Attorney End?
When a power of attorney is granted, unless the document specifies when or how that power begins, it normally starts as soon as it is signed. However, a good power of attorney document will not leave this important issue unstated. Specific powers of attorney can be granted for specific dates identified in the document. Usually, when people are preparing power of attorney documents, they commonly schedule the appointment to begin if, and when they are incapacitated. Some documents require a doctor to agree the principle person is in need of help, and a written statement by the doctor begins an appointee’s service as power of attorney. Some Power of Attorney documents specify that the appointment begins immediately upon signing.
Normally, if no end to the powers are identified or scheduled in the document, and the principle person has not revoked their Power of Attorney documents, the appointment only ends when the principle person finally passes away. However, as long as the principle person retains capacity to make their own decisions, they can change their appointment to someone else, or revoke the appointment altogether. The person appointed with power of attorney may also decline to serve at any time, and end their appointment. This is usually done with a written statement.
Will v. Financial Power of Attorney
What is the difference between a Will and Financial Power of Attorney? A Financial Power of Attorney document appoints someone with power of attorney, an agent, to act on your behalf and in your best interest in financial matters while you are still living. As soon as you pass away, the power of attorney is no longer. A Will appoints an Executor or Personal Representative to help make decisions about your assets and debts, your Estate, after you are dead. An Executor or Personal Representative acts in the best interests of the Estate.
Who Signs a Financial Power of Attorney?
In Arizona, a Financial Power of Attorney document must be signed by the principle person, a Notary, and an uninterested witness. The most important signature on a Financial Power of Attorney document is the principle person’s signature. That is the person who is granting the power of attorney to another. Their signature, and the acknowledgment of a Notary Public are generally required. The person who is given the power of attorney can also be called the ‘agent.’ In some states, the agent is also required to sign the Power of Attorney document acknowledging and accepting the appointment. In Arizona, this is not required; someone appointed with power of attorney in Arizona is not legally required to serve and may accept or decline the appointment at any time. Finally, Arizona also requires a Financial Power of Attorney to be signed by a uninterested witness. This means a person being appointed as the agent cannot also be the witness.
Who Should Be a Financial Power of Attorney?
Generally, your financial power of attorney can be anyone of your choosing. Of course, it should be someone you trust to always act in your best interests. But, they do not have to have any specific schooling, training, or professional licensing. Many appoint their spouse with financial power of attorney. It can be a family member or friend. It can also be a corporate trustee, a licensed fiduciary, or an attorney. Professional appointments like these normally charge a fee for service.
How do I Obtain a Financial Power of Attorney for My Parent?
Nobody can appoint themselves with the power of attorney to act on behalf of a loved one. It is very important that an aging parent, for instance, make an appointment of power of attorney while they still have the capacity to make their own decisions. After they lose capacity, only the court can help them by appointing a guardian. Sometimes an older person is mentally diminished but is still generally making their own decisions. If a person still recognizes who they are appointing, why they are appointing them, and understand the consequences of giving that authority to another, they can appoint someone with power of attorney. It is best to get legal advice about what the documents say and how they are initiated. Getting professional assistance with appointment of power of attorney protects the agent’s appointment from accusations of undue influence.