Q: What is a financial power of attorney (POA)?
A: A financial power of attorney is a document that gives someone else the power to make financial decisions for you.
If you create one, then you might be referred to as the principal.
Haven’t you always wanted an agent? Now you can have one! The person you appoint to take care of your finances is officially your agent.
Here’s all you need to know about financial POA.
How does a financial power of attorney work?
It allows your agent to manage all of your finances when you are not physically or mentally able to do so on your own. As much as you might think it should be otherwise, your finances won’t freeze just because you’re laid up in bed. Those bills will keep on coming! But if you’ve appointed someone to be your financial double, then you won’t have to worry about your finances when you can’t manage them on your own.
What can a financial POA do?
Well, that depends on how much permission you grant them. This can include the following powers:
- Make financial decisions
- Manage your accounts and investments
- Manage your property
- Pay your bills
- Pay your taxes
- Sell your assets
When does a power of attorney become effective?
Again, this depends on your personal choice.
You might prefer to have yours become effective as soon you both sign the document. Maybe you travel often and you want someone to be on hand to make financial decisions when you’re out of town. Or, you might want your POA to become effective only if, and when, you are incapacitated for whatever reason. Just make sure to put that in the document.
In some states, though, you won’t have a choice: your POA will automatically become effective if you become incapacitated.
When does a POA end?
Once you and the agent sign the document, it’s binding until death unless one of the following occur:
- You revoke it.
- A court invalidates it.
- The agent can’t represent you.
- You become incapacitated and your POA does not continue after incapacity.
What can happen if you don’t appoint a power of attorney?
If you don’t appoint a POA, then your finances will automatically revert to the state if you become incapacitated. If this happens, then your family will need to go through the courts to regain control of your assets. It will be a long, expensive battle that can easily be avoided with one magic document: a POA.
Your Turn: Have you drafted a POA? Tell us about it in the comments.
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