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Financial Powers of Attorney

Each type of power of attorney may contain specific powers that can make or break the usefulness of the document.

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.

Key Questions

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 care?

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.