A financial power of attorney is a legal document that authorizes someone you trust (your "agent") to manage your finances if you become incapacitated. Your agent can pay bills, access bank accounts, sell property, and handle other financial matters on your behalf. A financial power of attorney is included with every estate planning package.
What can an agent do under a financial power of attorney?
A financial power of attorney enables the agent of your choosing to:
- Pay bills and manage household expenses
- Access and manage bank accounts
- Make cash gifts on your behalf
- Open new accounts
- Sell property
- File tax returns
- Manage investments
Often this power is given to a spouse with a trusted friend or relative as a backup.
When does a financial power of attorney take effect?
Most financial powers of attorney are "springing," meaning they only take effect when you become incapacitated and unable to manage your own affairs. Within this document, you describe the powers you give to your agent and your agent does not have any authority to act on your behalf outside the scope of those powers. Whether the financial power of attorney is broad or limited, it is a crucial component of your estate plan.
Why are not all powers of attorney the same?
Not all financial powers of attorney are alike. Lacking a power of attorney or having one that is missing certain specific and important provisions can cause a headache for your family in time of need.
For example, if an individual has a taxable estate and has been making annual gifts in order to reduce the size of the estate to minimize an estate tax, the individual's agent could continue to make gifts on his or her behalf — but only if the gifting power were specifically granted in the power of attorney. Having the appropriate language in your power of attorney to provide for this and other circumstances could potentially save you thousands of dollars.
Can a financial power of attorney be revoked?
Yes. You can revoke or change your financial power of attorney at any time while you have mental capacity. Simply execute a new power of attorney or formally revoke the existing one in writing.
A financial power of attorney is a standard part of every will package or will and trust package.