POAs and other advanced directives are becoming more important.
The point of the POA. A power of attorney (POA) is a legal document that delegates an individual’s legal authority to another person. If someone is incapacitated, the POA would allow a trusted party to make decisions on his or her behalf.
There are several types of powers of attorney:
Nondurable POA- could be used in real estate transactions, or when someone elects to delegate their financial affairs to an assignee during an extended absence.
Springing POA- “springs” into effect when a specific event occurs (usually an illness or disability affecting an individual).
Durable POA- allows an assignee, or agent, to act on behalf of a second party, or principal, even after the principal is not mentally competent or physically able to make decisions. Once a principal signs, or executes, a durable power of attorney, it may be used immediately, until it is either revoked by the principal or the principal dies.1
Financially, a Power of Attorney is a tremendously useful instrument to ensure that your financial affairs are handled according to your wishes regardless of your ability.
A financial Power of Attorney allows your named agent to pay your bills, write checks, make investment decisions, buy or sell real estate or other hard assets, sign contracts, file taxes, and even arrange the distribution of retirement benefits.
This legal arrangement will give you the confidence of knowing that your financial life will be properly managed if you become unable to manage details for yourself.
Power of Attorney vs. Trusted Contact. A trusted contact is someone that you designate to receive information about your financial accounts. This person does not have the authority to act on your behalf, so they cannot make investment decisions, request distributions, etc.
Naming a trusted contact does allow your investment company or bank to contact the trusted individual to:
- confirm your contact information if they can't get in touch with you.
- confirm your current health status if they have concerns
- notify them of possible financial exploitation or fraud in your account.
We encourage everyone to name a trusted contact for their investment accounts. Married people should add their spouse so that we are legally authorized to give them information about your accounts.
Most individuals will benefit from having an executed Power of Attorney in force at some point in their lives. This is a situation where it's important to plan ahead for the unexpected events in life. If you become incapacitated and don't have a legal financial agent named, then in many cases, one will be named by the court. The individual named may not be who you would prefer, and they will not have the advantage of discussing your wishes in advance.
It's hard to plan ahead for the time when you're no longer able to make your own decisions. It can be uncomfortable to think about what such a situation might entail and when it will happen. On the other hand, planning now allows you to have some voice in how your future affairs will be handled on your behalf. Advance planning gives you the opportunity to have important conversations with your loved ones. In the best of situations, you will be able to make these plans many years before they need to be enacted.
Keep in mind this article is for informational purposes only. It’s not a replacement for real-life advice. Make sure to consult your legal professional so you can better understand what type of powers of attorney best fit your situation.
Citations
1. AgingCare.com, August 23, 2021
