Estate Planning: Power of Attorney

Whether you are just starting out in your career or preparing for your retirement years, it’s never too early to consider how you want your financial affairs to be managed if something happens to you and you are not able to exercise control over your finances for one reason or another. One solution is to grant power of attorney to your spouse, sibling, adult child or close friend—someone you trust to act wisely and in your best interest. This attorney-in-fact, or agent, has the legal right to make the decisions you would make if you were able. 

Powers of attorney can be a helpful way to prepare for the future, but many factors will determine the type of power of attorney you need and whether it will hold up when it needs to. And, remember, always exercise caution when you vest someone with the authority to make decisions about your finances. 

What is a power of attorney? Power of attorney is a legal document you sign to grant someone you trust with authority to make decisions on your behalf. You must sign when you are still mentally competent for your power of attorney to be valid. This is a good reason to plan early for your later years, so that your affairs are in order.    

Why do I need one? A power of attorney arrangement can be important—even essential—to managing your financial affairs in the event you unexpectedly become unable to manage things on your own. Planning for the future with a power of attorney could minimize complications to achieving your financial goals, but it may feel like a daunting task. Depending on your circumstances, you may want to talk to an attorney who specializes in these types of arrangements. 

What are the requirements for a power of attorney? The laws governing powers of attorney are specific to each state, so it is important that you understand the applicable laws both where you live, and where you have assets, before you set up your power of attorney. Most states require that your power of attorney be in writing, witnessed and notarized. For many states, you can find the state power of attorney requirements and forms on the official state website. It is also advisable to contact an attorney licensed in your state to ensure that you understand the local laws so your power of attorney meets legal standards. 

Are all power of attorney arrangements the same? When it comes to signing a power of attorney, you have options. There are different types depending on what your needs are. The type of power of attorney you choose matters because it will determine when such authority takes effect and when it is rescinded. For instance, non-durable powers of attorney are automatically revoked if you become physically or mentally incapacitated. So you may prefer to grant your agent what’s called a durable power of attorney, which remains in effect even if you become incapacitated. If your power of attorney isn’t durable, a court may need to appoint someone to act for you if you become incapacitated, typically called a guardian. This can be a time-consuming, complicated and expensive process for you and your family, and you may not have a say about who the court will appoint to manage your affairs. 

Can I make changes to a power of attorney? With any type of power of attorney, you have the right to revoke or change your agent’s authority at any time as long as you are not mentally incapacitated. If you decide to change or revoke your power of attorney, inform any parties that may rely on it as soon as possible. If you do not provide this notice, parties may reasonably rely on the old power of attorney, and you can be bound by the actions of the agent. 

For more detailed information on estate planning and powers of attorney, visit these helpful resources.