Financial Power of Attorney (POA)

If you are encouraging a loved one, such as a spouse, parents, or sibling to get a financial POA in place, the process will need to be a very gentle and tactfully approached conversation that will likely have to take place in phases over a period of time.  In fact, this should probably be in the larger context of an overall estate plan.

There are two types of powers of attorney that may be necessary. The first is a medical power of attorney, which gives control over medical decisions and is also called an Advanced Healthcare Directive, and a second is a financial power of attorney, which gives control over financial decisions. One person can serve in both capacities, but it is sometimes recommended to have a different person for each POA.

Creating a power of attorney and deciding on a primary agent are significant steps to take. So is becoming a primary agent. This first installment in a series of guides is designed to give you the basic building blocks you need to get started. 

Are There Different Types of Financial POAs?

It is important to understand that POAs can come in and out of effect based on time or other factors, and they can deliver a very finite or very broad scope of control. So you need to think about the conditions under which the POA should be in effect, the time frame, and what sort of financial control it will grant, and to whom.

General Power of Attorney

This document gives the agent authority in all situations (except for those expressly excluded in the document), including handling bank and investment transactions, accessing safe deposit boxes, buying and selling property, entering into contracts, filing tax returns, and managing government benefits. In some states, a general power of attorney could include creating or amending trusts during the senior’s lifetime, or transferring assets into trusts. 

A general power of attorney lasts until a date specified in the document or if there is no stated ending date until the principal — the person — dies or revokes the document. A general power of attorney also ends when the person becomes incapacitated unless the document is also designated as “durable” (see below). 

However, a general power of attorney does not mean that the person gives up authority over his own affairs. As long as that person s mentally competent, they keep authority over all their own financial decisions, with the agent acting only as an “assistant” financial manager.

Specific Power of Attorney

This document gives an agent authority only in specific situations named in the document, such as operating a business, making gifts or donations, collecting debts, or closing the sale of a home and distributing the proceeds. The specific power of attorney remains in effect until a particular date stated in the document until the named transactions are completed, or until the principal becomes incapacitated, dies, or revokes the document.

Durable Power of Attorney

This is the type of power of attorney that remains in effect and permits the designated agent to take care of all the person’s financial affairs if and when he becomes incapacitated, either temporarily or permanently. If the person doesn’t specifically designate a power of attorney as “durable,” it will automatically end if they become incapacitated.

Springing Power of Attorney

This type of power of attorney only becomes effective at a future time or with a future event, such as when the person travels outside the country or becomes incapacitated. It used to be common for durable powers of attorney to be written as “springing” into effect only if and when a doctor, or more than one doctor, certifies that the principal had become mentally incapacitated.

However, the process of getting a doctor to certify that someone is incapacitated has become difficult, even when the incapacity is obvious. Also, “mentally incapacitated” is medically and legally vague, so doctors are sometimes reluctant to make that determination. It can even be difficult to get hold of someone’s medical records or to have a doctor discuss his condition. For all these reasons, it’s not usually recommended that a durable power of attorney be springing.

Choosing an Agent

A primary agent should be someone who is trusted to act in your aging loved one’s best interests and per their explicit instructions — and it is not always the easiest job. An agent will have the freedom to handle his or her assets as he or she sees fit, so you and your family members may want to consider a potential agent’s financial knowledge or capacity for seeking and accepting outside help.

The agent will potentially spend a great deal of time acting on your loved one’s behalf with little or no financial compensation for these efforts. When your loved one is going through this process, make sure that no one is forcing them to assign a durable power of attorney to someone who may not be the most trustworthy, responsible person for the job.

Understandably, this can be a difficult conversation for families to have. Sometimes the right person to take on the responsibility of a POA is not the person closest to an aging parent emotionally. An experienced elder law attorney, possibly with the help of a family counselor, can facilitate this process in a way that limits family conflict or hurt feelings.

Executing a POA

A notary public or attorney must witness your loved one signing the letter of attorney, and in some states, you will need two witnesses. The chosen agent must be over 18 and fully competent, meaning they understand the implications of their decision. When filling out the form, the parent must specify which powers are transferring to the agent.

If the durable power of attorney specifies responsibilities regarding real estate, the letter of attorney should be recorded with the County Registry of Deeds. Give the original copy to the agent if you would like it to take immediate effect, and keep at least one copy for your own records. Alternatively, hold onto the original until you would like it to take effect. It may be advisable to have multiple copies of the POA if there is a large group of family and friends involved.

How Much Does it Cost?

While emotional and logistical aspects of getting a financial POA are the big issue by far, the cost is still something to be informed of so you can make the best choice for your needs and sensibilities.

A durable power of attorney for finances or healthcare can be completed for little to no charge. Some states offer free fillable POA forms online, or consumers can work with a local legal aid office to obtain a POA. There are also legal websites that sell POA templates for under $50.

In many states, these forms must be notarized in order to be enforceable. It is still advisable to have a POA document notarized, even if the state does not require it. This will help ensure that all entities an agent must deal with (banks, insurance companies, etc.) will accept the document as valid.

If you choose to get a free POA form online or through a legal aid service, then the only costs you incur may be for notarization. Most states set maximum fee limits for basic notarial acts to keep prices reasonable. Fees range from $2 to $10 per signature, and some notaries will come to clients who are hospitalized or otherwise unable to travel. There may be additional travel fees associated with notary visits.

Should I Use a Lawyer?

While free or low-cost POA documents may suffice in uncomplicated situations, some circumstances require professional legal counsel. For example, if there is conflict over who should be appointed as the agent, or if the principal has a complicated financial situation, it might be wise to hire an elder law attorney or an estate planning attorney to draft this legal document. In addition to creating the document itself, a knowledgeable attorney can discuss how the document works, take their client’s concerns into consideration, explain what powers the agent can exercise, and ensure the verbiage in the document reflects the client’s wishes and is in line with current state laws.

In many cases, having an attorney prepare POA documents provides added peace of mind. Professional legal advice is invaluable when it comes to avoiding common mistakes and POA pitfalls. For example, family issues are the most common cause of POA disputes. Therefore, attorneys (myself included) don’t normally recommend naming multiple adult children on a POA document to share the role of agent for an aging parent. This is known as a joint power of attorney and can be highly problematic. With this type of POA, all agents must act jointly and come to an agreement on each matter before any action can be taken. Sibling disagreements can quickly derail an aging parent’s care and finances.

A lawyer’s expertise is also helpful in tailoring the power of attorney to meet a client’s needs. For example, many basic POA templates and free forms use language that affords the appointed agent “general” powers over the principal’s medical care or finances. This is particularly important when drawing up a financial POA because it grants the agent legal authority over all financial decisions, including selling property, paying taxes, managing investments, Medicaid planning, paying for where the principal will live, and deciding how their money will be spent. If a principal wants to place any limitations on their agent’s power, then an attorney will need to tailor the language in this document accordingly.

There is a great deal riding on how a POA document is written, and there are several different kinds of attorney powers. Some POAs go into effect immediately but end upon the principal’s incapacitation; some are only enforceable once the principal has been proven incompetent by a physician (a springing POA), and others remain valid regardless of the principal’s mental capacity (durable power of attorney). A reputable elder law attorney can listen to a client’s concerns and desires and draw up the right legal documents for their unique situation. While this may cost more, it isn’t possible to get this kind of personalized legal advice and service when purchasing an affordable POA template online. An off-the-shelf POA form is better than nothing, but there are risks involved in taking this inexpensive approach.

Next in the series

• Advance Healthcare Directive vs. Financial Power of Attorney
• Logistics: Getting a POA in Place and Using it
• Pitfalls and How to Avoid Them