Setting Up Your Financial Power of Attorney Checklist

Understanding Financial Powers of Attorney

As we grow older, planning for a time when we may become incapacitated and unable to make financial decisions is important. This is where a financial power of attorney comes in - a powerful legal document that allows you to appoint someone you trust to manage your financial affairs if you cannot.

A financial power of attorney, also called a durable power of attorney, grants legal authority to your designated "agent" or "attorney-in-fact" to handle bills, investments, taxes, real estate and more on your behalf. This person will have a fiduciary duty to act in your best interests.

It's crucial to establish a power of attorney while you are still mentally competent to do so. Once drafted, signed and notarized according to state laws, it will remain in effect if you eventually become incapacitated. This allows a smooth transition for managing your finances.

Benefits of Having a Financial Power of Attorney

Failing to properly plan ahead by establishing a financial power of attorney has significant risks and downsides:

• Your loved ones may have to go through an expensive, public, and time-consuming court process to get a conservatorship or guardianship over your finances if you become incapacitated. This is often adversarial.

• Without the proper authority, even your closest family members won't be able to access your financial accounts or make decisions about paying bills, managing investments, selling property, etc.

• The court may appoint someone you wouldn't have chosen to manage your affairs if you can't make decisions.

Having a durable financial power of attorney prepared ahead of time avoids these issues and provides major advantages:

• You retain control by choosing a trusted person to act on your behalf according to your wishes and values.

• Allows a smooth transition if you become unable to manage finances with no court involvement required.

• Your designated agent can make critical financial decisions quickly without delays.

• Provides peace of mind knowing there is a plan if the unexpected happens.

Choosing Your Agent or Attorney-in-Fact

One of the most important decisions in drafting a durable power of attorney is whom you will appoint as your agent or attorney-in-fact. This person will have a tremendous amount of responsibility and authority over your finances, so choosing carefully is critical.

Some key considerations when selecting your agent:

• Trust and reliability are paramount - this should be someone you trust completely with your finances and best interests. Family members are a common choice.

• Pick someone in a younger generation than you with sound mental capacity.

• Choose a well-organized person capable of recordkeeping, money management, or get professional management help.

• Make sure they have the time available to take on these responsibilities if needed.

• Discuss it with your intended agent first to ensure they are able and willing to serve in this role.

• Name a successor agent as a backup if your first choice is unable to serve.

It's wise to check if the person you want to appoint has any issues that could be a problem, such as money troubles, substance abuse, etc. An attorney can provide guidance on properly vetting potential agents as well.

Granting Powers to Your Agent

When drafting your durable power of attorney, you'll need to specify what authority you want to grant your appointed agent for managing your finances. There are various powers that can be included depending on your preferences and situation.

Common powers granted include:

• Access financial accounts (bank, investment, etc.) and pay bills
• Buy, sell, mortgage or refinance real estate
• File tax returns
• Manage retirement accounts and government benefits
• Handle insurance transactions
• Operate a business you own
• Make investment decisions
• Make gifts or transfers to family within tax limits
• Access safe deposit boxes

You can give your agent broad, sweeping authority or limit their powers to specific areas. An experienced estate attorney can explain the different options and implications.

It's important your power of attorney is durable and remains effective if you become mentally incapacitated. Otherwise, it terminates upon incapacity, defeating the purpose. Most states recognize the "Uniform Power of Attorney Act" which provides for durability.

Executing the Power of Attorney Document

To make your durable power of attorney legally valid and enforceable, you must follow your state's execution requirements precisely. An experienced estate planning attorney can guide you through this process.

In general, the key execution requirements include:

1. The document must be properly titled as a Durable Power of Attorney.

2. You, as the principal, must sign the document or direct someone to sign it in your presence.

3. Your signature must be witnessed and notarized, usually requiring two adult witnesses.

4. Some states certification of your mental competency when signing.

5. You must use the precise statutory wording required by your state laws.

After proper execution, be sure to make several certified copies of the document. Provide your agent with an original copy and keep multiple originals yourself with your other estate documents.

You'll also want to inform relevant third parties (banks, investment companies, etc.) that you've executed a new power of attorney naming an agent to act on your behalf.

Updating or Revoking Your Power of Attorney

Over time, your personal situation and needs may change. Or, you may lose confidence in the person you initially appointed as your agent. For these reasons, it's important to understand how to properly update or revoke your existing durable power of attorney if needed.

To revoke or nullify a previously executed power of attorney document, you'll want to take these steps:

1. Create a written revocation document clearly stating your intention to revoke the previous POA.

2. Sign and date the revocation document following the same formalities (witnesses, notarization) required in your state.

3. Distribute copies of the revocation to your former agent and all third parties that were previously provided the original POA.

Alternatively, instead of revoking entirely, you may want to execute a new, updated POA document that simply replaces the obsolete one. This new POA should reference that it revokes all prior documents of its kind.

Be sure to follow all your state's execution requirements for either a revocation or new POA creation. An estate lawyer can ensure this is handled correctly.

Potential Drawbacks to Consider

While establishing a durable financial power of attorney has many important benefits, there are also some potential drawbacks to be aware of:

• You are legally transferring an immense amount of authority over your finances to another person. This requires a huge amount of trust in your appointed agent.

• Your agent could potentially mis-handle your assets or take actions misaligned with your intentions, whether intentionally or not.

• Adding someone's name to accounts can create unnecessary tax and legal complications to track.

• There are executory costs involved in drafting the POA document with an estate attorney.

• If not updated, an outdated POA could remain in effect even if your situation changes significantly.

To mitigate these risks, in addition to vetting agents carefully, you can include protections like requiring your agent to keep detailed records, limiting gifting powers, or appointing a monitor to oversee the agent. An attorney can advise on appropriate guardrails.

Wrapping Up - Next Steps

Setting up a comprehensive financial power of attorney is a crucial part of preparing for the possibility of becoming incapacitated later in life. While the process can seem daunting, by breaking it into clear steps and utilizing professional legal help, you can have great peace of mind knowing there is a proper plan if the unexpected occurs.

Key next steps:

• Identify 1-2 potential agents and have discussions with them about serving in this role
• Consult an experienced estate planning attorney to draft the POA according to your state's laws
• Follow all required execution formalities like witnesses, notarization, etc.
• Distribute executed copies to your named agent and any institutions that may need it
• Review and update your POA periodically as situations change

Don't leave your finances unprotected - establishing a durable power of attorney ensures your trusted wishes will be carried out if you cannot make your own decisions. It's an important part of a comprehensive estate plan.

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