What Is a Financial Power of Attorney?
Financial Power of Attorney Explained
So much of estate planning is thinking through how you want things handled after you die, before you start actually making a documented plan. The idea of a financial power of attorney (FPoA) flips that a bit, because it’s about appointing someone to handle your affairs in case you become incapacitated and can’t make your own decisions. The process seems complex, but we’ll simplify it so you can make sense of the basics you need to know to include this important element in your estate plan.
What Role Does a FPoA Play in Estate Planning?
In a nutshell, a financial power of attorney is a document in which you appoint a trusted person to act on your behalf to make financial decisions. In establishing a FPoA, you hand over the legal reins to another person to conduct financial transactions, sign documents, or make other legal decisions as if they were you. This might happen for only a limited period of time (during a serious illness or after an accident, for example), or it can take effect immediately upon signing and last up to your end of life. Once your FPoA is completed, your trusted person, the agent, sometimes called an attorney-in-fact or fiduciary, can be responsible for managing your financial affairs. You will need to use a second document, called an Advance Health Care Directive (sometimes known as health care proxy or health care power of attorney), to designate who should handle all of your medical decisions. There are several types of FPoA, so consider the specific needs of your estate before selecting one.
Durable Power of Attorney
The most common type of FPoA established in estate plans is a durable power of attorney. In this type, the person you name has your permission to act on your behalf until you either revoke that right or die—including in the case that you become physically or mentally incapacitated. Their responsibilities can be spelled out specifically in the Financial Power of Attorney document, and can often include the ability to:
- Sell or manage property and real estate
- Sign legal documents and checks
- Manage personal and business-related financial accounts
- Pay medical bills (but not make healthcare decisions)
- File taxes and settle claims on your behalf
- Hire professional assistance, such as a lawyer or advisor
Non-Durable Financial Power of Attorney
A non-durable FPoA handles most of the same responsibilities; however, your agent’s powers end when you become mentally incapacitated. This can be a good option for a short-term physical illness or injury that doesn’t affect your mental capacity or an extended time out of the country. However, because their powers are revoked if you are mentally incapacitated, it probably is not the best way to ensure they have authority to make end-of-life financial decisions for you. Some states automatically make all FPoAs durable, so it’s important to know how your state handles them.
Why Include a Durable Power of Attorney in Your Estate Plan?
Many parts of your estate plan take effect after your death—especially if you have a Will rather than a Trust. Putting a FPoA in place supplies coverage and peace of mind for end-of-life financial decisions you can’t make for yourself. It also provides you with a trusted decision maker in case of emergency. Keep in mind that to complete your FPoA it must be signed in accordance with your specific state's requirements, which might mean needing to be notarized or having a witness(es) present to sign.
Our intuitive platform will let you know what your specific state’s requirements are and makes it straightforward to get your Financial Power of Attorney signed and securely stored in our Vault.