A financial power of attorney is one of the most
important tools in your estate
planning portfolio. Regardless of whether you chose a will or a
trust, you would be remiss not to
include this document.
But it is far too easy to just "prepare" a financial power
of attorney, and there is no single form that is used. You need to get advice on
what type of financial power of attorney you need.
• See also:
Health Care Powers of Attorney
For example, some powers of attorney become effective the
moment they are signed, and are referred to as an "immediate" power of
attorney. An immediate power of attorney conveys immediate power to your
designated agent to act on your behalf now, regardless of whether you still have
capacity to make your own financial decisions.
Another type of power of attorney is referred to as a
"springing" power of attorney. These do not become effective until an event
occurs that is described in the document. Typically, the power of the agent to
act on your behalf does not begin until at least one physician certifies in
writing that you are no longer capable of handling your affairs.
Then there are "special" powers of attorney,
utilized for one particular matter. A good example would be a power of attorney
that gives your agent the power to carry out a particular transaction, such as a
real estate sale and closing.
If you have a trust, do you need a power of attorney? The
answer is a resounding yes, but do you know the difference between a
trust and a power of attorney and when to use each?
Each power of attorney may contain specific powers, that can
make or break the usefulness of the document. Do you want your agent to be able
to make gifts to others? How about the power to make gifts to the agent? Is
there a limit on the value of any such gift? Is it a good idea to make sure your
agent can handle your assets should you end up needing long term care? Does your
document allow for the type of planning necessary in the event of long term
Power of attorneys can be a source of financial abuse. There
are many instances in which an agent has misused the authority granted in the
document to your disadvantage. Exceptional care must be used when drafting and
utilizing a power of attorney.
Also keep in mind that not all financial institutions will
accept your power of attorney. They have their own sets of rules and you need to
know what those are.