An important feature of an estate plan is that it protects your assets and your wishes in the event that something happens to you. While a Will or Trust determines how your assets will be handled if you die, documents like a Health Care Proxy or Power of Attorney control how your health care and finances are managed while you are still alive, even if you cannot personally make decisions.
What is a Power of Attorney?
A Power of Attorney (POA) is a powerful legal tool that gives another person the authority and ability to act on your behalf. A Power of Attorney is a document that allows you to appoint a person or organization to manage your affairs (not healthcare) if you cannot. In a Power of Attorney, the person who is naming another person to be in charge of performing actions for him or her is called the principal. The person appointed to be in charge of decisions when the principal cannot is called the agent or attorney-in-fact.
When you sign a financial Power of Attorney, depending on how it is written, you are giving this person, called your attorney-in-fact, the ability to take immediate control over your finances. Before granting power of attorney to anyone, it is important that you understand the extent of the power over your finances that you are giving.
Every capable American adult should have a Power of Attorney. This document allows you to choose who you want to manage your estate if you are unable to, either due to illness or travel. Some people may object and think that if they don’t have an “estate” this document is not for them. However, this is far from true. Even if you only have $100.00 in your bank account, if you have not named someone as your agent under a valid Power of Attorney, then your loved ones would need to go to court to get the authority to access that $100.00 and guess what? The legal costs to do so will exceed the amount that you have. Nonetheless, the account will still have to be dealt with, so make it easy for your loved ones and choose someone to be your Power of Attorney. Do not add to their burden. Empower them to help you by creating a valid Power of Attorney.
Different Types of Powers of Attorney
Your Power of Attorney enables you to legally name someone else to make decisions for you in regards to either your health; your money or even your pets. There are some different types of financial Powers of Attorney and why and when you may want to use them.
Powers of Attorney can be limited by both time and authority. In regards to time, you can create a Power of Attorney that is only valid for a certain period of time. For example, if you are going on a month-long vacation, you may create a Power of Attorney that empowers someone to make financial decisions for you only during the time frame when you are away. A durable Power of Attorney is not limited by time. It remains in force and effect until you die, unless you revoke it or appoint someone else.
Powers of Attorney can also be general and include all possible financial powers, or you can limit it to specific powers. For example, sometimes at a real estate closing when two parties are buying property, but the first buyer is unavailable to attend the closing, the second buyer has a Power of Attorney from the first buyer but only for the limited purpose of purchasing the real estate.
When you join Gentreo, you are able to choose your primary Power of Attorney and name two alternate choices. You also can choose what dates you want the Power of Attorney to be effective. Finally, you are given the option to tailor your Power of Attorney so that you choose which specific powers you want to give your Power of Attorney.
Using a Springing Power of Attorney
Since most people want to be able to control their finances as long as they can, many people opt for a springing Power of Attorney. With a springing Power of Attorney, the attorney-in-fact cannot act until a future event occurs and the Power of Attorney “springs” into effect. For example, a properly worded springing Power of Attorney might become effective when a doctor diagnoses you with a mental illness or if you are in a coma.
However, springing Powers of Attorney are problematic. Since these Powers of Attorney use an event, like your (the principal’s) incapacity to trigger the Springing Power of Attorney, it requires proof that the springing event occurred. This type of approach is problematic because it throws a burden on your agent and your financial institution to prove that you are incapacitated in order for the Power of Attorney to be enforced. This means that your financial agent must work with your health care agent to obtain the necessary documentation. This can be more difficult than you would think because most medical providers are overworked and reluctant to complete these forms for multiple reasons.
When Does a Power of Attorney Take Effect?
It depends on the type of Power of Attorney you have. For example, a springing Power of Attorney only takes effect after a triggering event, like incapacitation. Others might be limited in scope and nature. However, most people are signing general, broad-scope Powers of Attorney that become effective immediately.
With a general Power of Attorney, your attorney-in-fact has the ability to control your bank accounts, change your beneficiaries, and more from the moment that you sign it. While this may sound scary, there are times in life when you want someone to take over and make proper financial decisions for you when you cannot. Of course, the key is that your attorney-in fact must be trustworthy and always looking out for your best interests. This is why many people choose someone close to them, like an adult child, a parent, or a spouse.
What Authority and Powers Will Your Attorney-in-Fact Have?
With your Power of Attorney, you can give as much or as little power as you wish. However, general Powers of Attorney allow your attorney-in-fact to make a wide array of financial decisions on your behalf and without any additional approval from you. These powers can include bank accounts, personal property transactions, real estate transactions, handling your business, tax issues, life insurance, and more. Basically, with a general Power of Attorney, your attorney-in-fact steps into your shoes and can make decisions on all financial matters that you would be entitled to make.
For this reason, it’s really important to choose a trustworthy person to be your attorney-in-fact, because they can essentially act as you and you want them to make decisions in your best interest. Fans of the Rocky movie franchise may recall the storyline of Rocky V, where Rocky made his accountant attorney-in-fact and granted him a general Power of Attorney over his finances. The accountant used Rocky’s money to make poor financial investments, causing the boxing champ to lose everything and forced him into bankruptcy. While Rocky V is a fictional tale, the events in the movie are based in reality. In the movie, Rocky made a bad decision to give his accountant Power of Attorney, without limitation. Basically, he trusted the wrong person. When you create your Power of Attorney it is imperative that you select a person who you know will act in your best interests and the interests of your estate.
Why a State-Specific Power of Attorney is Critical
It’s important to complete a Power of Attorney that’s applicable to the state in which you live. This is because certain states have specific requirements concerning the limitations of power provided to an attorney-in-fact.
Many people use standardized Power of Attorney forms that they download from the internet or receive from a friend. In some cases, people don’t understand that they should use a state specific form. The form looks relatively easy to complete and thus they assume that it would be legally enforceable throughout the country.
When you give a Power of Attorney to an agent or attorney-in-fact, it is important that you use state specific language. Failure to use this specific language can result in a challenge to your Power of Attorney and ultimately cause litigation.
Let’s look at an example. Under New Hampshire law, if your attorney-in-fact is someone other than your spouse, a direct descendant or an ancestor of yours, you must include the following language:
My agent may exercise authority under the Power of Attorney to create in my agent, or in an individual to whom my agent owes a legal obligation of support, an interest in my property by any manner (other than a gift), including, without limitation, my right of survivorship, beneficiary designation, or disclaimer.
If you live in New Hampshire and that state-specific language is not in the Power of Attorney, your attorney-in-fact could be liable for improperly transferring property under the Power of Attorney.
The primary reason for this particular tool (which is used by many states including Florida) is to prevent a non-family member from improperly using the powers granted under the Power of Attorney to his or her benefit. There are a number of cases across the country where a non-family member is appointed as attorney-in-fact under the Power of Attorney and abuses his power by transferring properties and money to himself. It is because of situations like this that many states have passed laws requiring specific language in the Power of Attorney whereby the signer explicitly gives the broad power to act on his or her behalf.
When preparing a Power of Attorney, it is critical that it complies with your state’s statutory requirements. In particular, when appointing a non-family member as attorney-in-fact, many states require you to add specific language which gives your agent the explicit power to act on your behalf. If you fail to use this language, you leave the door open for individuals to challenge the validity of transfers and other actions taken by your attorney-in-fact.
Does My Power of Attorney Need to Be Notarized?
Even though your state may not require a Power of Attorney be notarized, most banks and financial institutions do.
A notary public or notary is a person designated as a representative of the state government whose job is to officially verify the identity of the signer(s), ensure the signer(s) is signing under his or her own free will, and witness the signing of the document of which the notary then will be signing and stamping.
Gentreo and many estate planning attorneys recommend always having a Power of Attorney notarized so you and the person helping you are prepared when it is needed.
For instance, imagine you are the agent for your father who is now in a coma. You need to go to the bank to move money into a different account to pay for your father’s care. You and your father followed the rules and had two others witness that your father named you as his agent. The bank tells you, however, that it will not recognize the Power of Attorney without notarization.
Most states also require a Power of Attorney be notarized if you are selling or placing a mortgage on a home or property. For example, in California, you do not need notarization for a Power of Attorney, but if you want to sell real estate, you must present a Power of Attorney that has been both signed and notarized. Even if your state does not require a Power of Attorney to be notarized, it is smart to do so. Many times when you will need to use the Power of Attorney, the person you are helping will most likely not be able to say he or she signed the document making you the Power of Attorney; yet the institution you are interacting with requires notarization.
A financial Power of Attorney is a very useful tool that, if used properly, can protect your money and your estate. Keep in mind that you should only give power of attorney to someone that you trust because with a general Power of Attorney, as they will have the ability to act on your behalf immediately.
Finally, it is essential to keep a Power of Attorney up-to-date. Gentreo recommends reviewing and potentially updating your Power of Attorney once per year. If this document is out of date, financial and other institutions may question its validity. For example, if you have a 15-year-old Power of Attorney from your mother, who is in a coma, and you go to a bank to try to get money from her account to pay her bills, the bank still may reject this Power of Attorney as the bank has the responsibility to protect the funds and may reject the power of attorney for being ‘stale.’