A financial power of attorney allows someone, whom you will appoint, to pay your bills and make financial decisions on your behalf if you become seriously ill and unable to manage your money. A financial power of attorney is also known as a "durable" power of attorney because it will continue to be effective after you are incapacitated. Drawing up a financial power of attorney is relatively simple and can be done without the help of a lawyer.
Choosing an agent for your financial power of attorney
Think carefully about whom you want to place in charge of your finances. The headlines are full of lawsuits brought by people who feel someone they appointed over their finances took advantage of the situation. The person you choose—known as your agent or attorney-in-fact—should be someone you trust.
You don't have to give your agent unlimited access to your finances. You can specify exactly what the agent may do on your behalf. Some issues you might want your agent to handle include the following:
- Paying income or real-estate taxes
- Paying household bills
- Collecting government benefit checks
- Managing retirement accounts
Your financial power of attorney will be effective until you die, unless you revoke it, get divorced and your spouse was your agent, or the person you named as agent can't take on that role. If you want to appoint someone else or change the parameters of what your agent can handle for you, draw up a new document.
Creating a financial power of attorney
Drawing up a financial power of attorney is relatively simple. Online forms are available—check your state attorney general's Web site—and you shouldn't need a lawyer to create the form. Some spouses like to both have financial powers of attorney in case one is out of town when a financial matter needs to be addressed.
1. Determine what type of financial power of attorney you need. Some people create a "springing" financial power of attorney. This means the document only springs into effect when a doctor says you are officially incapacitated.
2. Decide when you want your financial power of attorney to take effect. It could take effect immediately, if need be.
3. Review and complete the financial power of attorney form. If you have trouble with this, you can get help from a lawyer.
4. Sign the document in front of a notary public. The notary needs to be able to testify to your identity, and in some states you'll need additional witnesses as well.
If you don't have a financial power of attorney
If you don't draw up a financial power of attorney and you become too ill to manage your finances, your relatives will likely need to hire a lawyer and ask a court to grant them the right to manage your money while you are incapacitated. These costs will probably come out of your assets.