When most people think of an estate plan, the first thing that comes to mind is a Will or a Trust. While these documents are considered the centerpieces of any estate plan, the reality is that there are many more parts involved in crafting a high quality plan, no matter the complexity. The Will and Trust, which serve as the primary documents handling the matters that arise when someone passes away, have little to no effect during an individual's lifetime. That is when the supplemental documents including the Financial/Durable Power of Attorney, Health Care Power of Attorney, and Health Care Directive (also known as a Living Will) come into play. In this series, we will be taking a closer look at each of these documents, and their roles in planning for unexpected events that may occur during someone's lifetime.
What is a Financial/Durable Power of Attorney?
A Financial Power of Attorney is a document that allows one person to act on behalf of another in various financial and legal matters. The person giving this power is called the "principal", while the person receiving this power is called the "agent".
What Kind of Powers Does an Agent Have?
There is a wide array of powers that can be given to the principal by the agent. These include:
- Engaging in transactions involving both real and personal property
- Managing of securities and retirement accounts, including stock accounts, IRAs, 401(k)s
- Enforcing legal rights including liens and potential claims
- Operating a business
- Decisions regarding the rights of children
- Filing of taxes
These are just a few of the potential powers that can be given by a principal to an agent. The Financial Power of Attorney is a very custom document, and can be shaped in many ways to suit the needs of any given individual.
When Does a Financial Power of Attorney Become Effective?
There are two options for choosing when a Financial Power of Attorney becomes effective:
-Upon incapacity - This means that the powers given to the agent only become effective when the principal has become incapacitated. An example of this is a major accident that results in the principal entering a coma. The agent can then step in and manage the finances of the principal until they are able to recover.
-Effective immediately - In this case, the powers are given to the agent as soon as the document has been executed. An example of this is when a partner appoints their spouse as their agent, and the appointment is effective immediately. The spouse can then act on behalf of the partner in any way that has been authorized in the document, such as finalizing a loan on their behalf, or opening a new bank or investment account.
Who Can (and Should) Serve as an Agent?
Anyone who has reached the age of eighteen, and is mentally sound may act as an agent. This does not mean that anyone meeting this description is a good fit. An agent should be someone you trust to make sound financial and legal decisions on your behalf, and who you have a close relationship with. They must be organized and reliable, and should never be at risk of acting against your best interest. These are important powers being conveyed, and the agent should be able to recognize the importance of such an appointment, and act responsibly at a difficult time.
This is a very general summary of the issues involved with creating a Financial Power of Attorney, but I hope that it gives you the information needed to move forward with creating a plan to protect you and your loved ones. If you have further questions, please feel free to contact me in order to schedule a consultation where more specific concerns can be addressed.
Look out for further installments of this series, in which we will cover Health Care Powers of Attorney, Health Care Directives, and much more.