Should You Have a Financial Power of Attorney?
Naming a financial power of attorney allows you to choose an individual to handle your financial matters if you're unable to do so yourself. It's common to create a will and get life insurance with a beneficiary as part of your estate planning. Still, many people forget to set parameters around what happens if you become incapacitated or need temporary assistance rather than pass away. It's wise to give someone a financial POA before you find yourself in a situation where you need one. Here's everything you need to know.
What is financial power of attorney?
There are several types of power of attorney. A medical POA, for instance, gives someone the right to make medical decisions for you in the event you're unconscious or unfit to make those decisions on your own. Similarly, a financial power of attorney has the legal right and responsibility to manage your assets on your behalf.
Duties include things like:
- Paying bills
- Making deposits and withdrawals from your bank account
- Buying and selling assets such as stock and real estate
- Managing government benefits and retirement benefits
- Overseeing tax and insurance issues
As you can see, it's crucial only to name someone you trust with financial power of attorney.
Financial durable power of attorney
You can give someone financial power of attorney at any point in your life. Still, most people only give this legal responsibility when they cannot make financial decisions independently. This is called durable power of attorney. The duration of the POA is only in effect while you're incapacitated, such as from illness or injury.
When would power of attorney be needed?
There are numerous scenarios where giving someone power of attorney over your finances may make sense. One common situation is if an individual becomes unable to manage their finances independently, perhaps from old age or an accident that renders them unconscious or unable to function well outside the hospital.
You could also grant someone financial power of attorney to help with logistics. Perhaps you're buying property out-of-state, and you can't make it to closing. Giving financial POA to someone local lets them close on your behalf.
Another scenario is if you're getting a risky medical procedure done or you'll be unconscious during surgery. You may want that extra assurance that your finances will be managed if something unexpected occurs.
If you're married, you may not think granting financial power of attorney is necessary. But depending on your state's laws, it can be difficult for a spouse to sell joint assets without a POA. Having that legal document in place can relieve your spouse of many headaches when they may have more important things concerning them.
Financial power of attorney template
You can learn how to create a power of attorney in just a few steps. Your state may already have an easy-to-use template available depending on where you live. You can typically choose what type of POA you'd like to name, including financial, medical, or both. When filling out the form, you're considered the principal, and the person to whom you're giving legal power is called the agent. Then you choose the duration of the powers, if any.
Once you've filled out the form, you'll need to follow your state's instructions for legally finalizing the paperwork. The power of attorney form needs to be notarized by a notary public in most areas. You may also need one or two witnesses, so find out those details before making an appointment.
How to include power of attorney in your overall financial plan
Planning for unexpected situations is an integral part of protecting your family and ensuring your wishes are upheld in any number of scenarios. In addition to naming a durable financial power of attorney if you're suddenly incapacitated, you should also take a few more steps to prepare in the event something happens to you.
Ethos makes it easy to take care of much of your estate planning in one place. This helps you quickly access the resources you need while simplifying the process for your beneficiaries when they need to access this information. Resources include:
- Legal will
- Life insurance and how it works
- Power of attorney, medical directives, and more
Designating a financial power of attorney, whether temporary or permanent, is an integral part of the estate planning process. As you write your will, purchase life insurance, and take care of other must-haves, also consider who you'd want to act on your behalf if you couldn't make financial decisions on your own. Getting the correct legal documents in place is simple and can make life a lot easier during potentially stressful periods later.
The information and content provided herein is for informational purposes only, and it is not to be considered legal, tax, investment, or financial advice, recommendation, or endorsement. You should consult with an attorney or other professional to determine what may be best for your individual needs.