How to Choose Your Financial Power of Attorney: Practical Advice

Understanding Financial Power of Attorney

As you plan for the future, choosing someone to manage your financial affairs if you become incapacitated is an important decision. A financial power of attorney is a legal document that grants authority to another person, called an "attorney-in-fact" or "agent," to handle your finances on your behalf.

This person would have the ability to pay bills, manage investments, file taxes, and make financial decisions for you. While it's not an easy choice, selecting the right person can provide immense peace of mind.

Qualities to Look for in Your Attorney

When choosing your financial power of attorney, look for someone you can wholeheartedly trust. This person should have strong ethics and integrity. You'll want an honest individual who will make decisions with your best interests in mind.

It's also important to select someone who is organized, responsible, and capable of managing finances. They should be able to understand banking, investments, insurance, taxes, and legal matters. If arithmetic and money management isn't their strong suit, this role may not be the best fit.

In some cases, it may be wise to choose a person younger than you. This helps ensure they'll be able to carry out the duties for the duration required. However, age alone shouldn't be the deciding factor.

Considering Family Dynamics

For many people, a family member like a spouse, child, or sibling is the natural choice for power of attorney. While this can work well, family dynamics may also complicate matters.

Be cautious about selecting someone who has a strained relationship with other family members, displays concerning financial behaviors, or may have trouble making objective decisions. Sometimes an outside party can make better impartial choices.

If you do opt for a close family member, have an open discussion beforehand. Making your wishes clear and getting their commitment to follow your directions is crucial. You may also want to name a successor in case your first choice is unable to fulfill the duties.

Setting Clear Expectations

Once you've selected a potential attorney-in-fact, it's important to have an open discussion about expectations for the role. Explain your wishes, values, and priorities regarding financial matters.

If you have particular investment philosophies, real estate plans, or charitable goals, communicate those clearly. Make sure they understand the scope of permitted activities and any limitations.

You'll also want to decide if their role is limited to when you're incapacitated, or if you want them to have immediate authority as well. Putting everything in writing in the Power of Attorney document can help avoid misunderstandings.

It's wise to check in periodically, even after completing the paperwork. Your circumstances and theirs may change over time, so revisiting the arrangement is beneficial.

Avoiding Potential Conflicts of Interest

It's crucial that your financial power of attorney is free from conflicts that could cloud their judgment or ability to act in an unbiased manner. Someone who stands to inherit a large portion of your estate may face perspective issues.

Similarly, a business partner, creditor, caregiver receiving compensation, or employee could have conflicts. In these cases, it may be better to select a neutral third party, such as a trust company, bank, or professional fiduciary.

You'll also want to avoid naming multiple agents unless you specify their duties don't overlap. Having co-agents with equal power can lead to disagreements and an inability to take action.

Be wary of potential agents with substance abuse issues, previous bankruptcy filings, or a history of criminal behavior as well. These could indicate irresponsible money management.

Updating Your Power of Attorney

It's a good idea to periodically review your power of attorney assignment, especially if major life events occur. Marriages, divorces, deaths, or changes in relationships may necessitate an update.

If your originally named attorney develops health issues, chronic problems, or simply proves unsuitable over time, you can revoke their privileges. The process varies by state but typically involves sending a revocation letter and establishing a new assignment.

Similarly, if you have a falling out or your representative fails to prudently manage affairs, you can remove their authority. Moving promptly to cancel their legal power is wise to protect your interests.

As you experience major life transitions like retirement, widowhood, or decline in cognitive abilities, check that your prior power of attorney choices still make sense.

Making it Official - The Legal Process

Once you've carefully considered and selected your financial power of attorney, it's time to make it official through proper legal channels. States have specific laws and documentation requirements.

In most cases, you'll complete a Power of Attorney form, which must be signed by you and your chosen agent while you're still mentally competent. Many states require having the form notarized as well.

An attorney can ensure you fill out all paperwork accurately and handle any special situations. For example, in some states, spouses may need additional forms beyond a standard POA.

The document should specifically state what authorities you wish to grant your agent. Will they have limited or broad powers related to banking, real estate, investments, etc.?

Being specific upfront helps provide clear legal authority and prevent future challenges. Most importantly, follow your state's laws precisely.

Wrapping Up - Communication is Key

Choosing your financial power of attorney is a vital decision that requires serious thought and care. While the legal requirements are essential, frequent open communication is just as important.

Have frank discussions with your potential attorney beforehand to ensure you're on the same page. Explain your principles, priorities, and vision for the future. Make sure they feel able to uphold your wishes.

Even after establishing the legal arrangement, check in periodically. Situations can change, so reinforce expectations as needed. A proactive, transparent approach can prevent issues.

Most importantly, don't wait until it's too late. Establish your power of attorney while you have full mental capacity. With some diligence and care, you can ensure your finances are in trustworthy hands when you need it most.