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5 Things You Didn’t Know about Financial Power of Attorney

What does it mean to be a financial power of attorney? We break down this Estate Planning term in our comprehensive guide.

Understanding Power of Attorney is key to setting up an Estate Plan that has all your bases covered. Having a Financial Power of Attorney (POA) in place ensures you’re establishing a way for your affairs to be managed when it matters most - when you can’t do it yourself. 

If you’ve ever wondered: what is a Financial Power of Attorney and do I need one, we’re covering everything you need to know about Financial POAs as part of your comprehensive Estate Plan. And if you want a better understanding of Power of Attorney in general, we've got you covered.

Our guide covers the top five things you should know every step of the way, in every circumstance.  Read on to learn:

What is a Financial Power of Attorney?  

A Financial Power of Attorney is the part of your Estate Plan that allows you to grant authority to someone you trust to handle your financial matters. Your Financial POA (also known as an Attorney-in-Fact) can step in when and if you’re ever unable to make financial decisions on your own due to incapacitation, death or absence. 

General Power of Attorney is another form of POA that essentially accomplishes the same goal of ensuring a trusted, competent person can make decisions on your behalf should the time come. Powers to act can be very specific, or they can be pointedly broad.  

What is a Durable Financial Power of Attorney?

A Durable Financial Power of Attorney is just the term used that denotes someone can act even after you become incapacitated and can’t express your will or make decisions. It’s not uncommon to wonder what powers does a Durable Power of Attorney have - and we’ll cover that in a bit. But for now, the most important thing to understand about a Financial POA is that it will cover all the financial matters in your life (which could be business or personal), but it would not cover medical decisions unless you specifically note that in your paperwork. 

Two last points - note that some states will automatically see a Financial POA as “Durable,” meaning it lasts even if you’re suddenly incompetent. Also, the role dissolves upon your death unless you’ve written in specific language noting otherwise elsewhere in your Estate Plan (such as your POA could then become Trustee of your Trust or Executor of your Will). 

Durable Power of Attorney vs Living Will

A Durable Power of Attorney and a Living Will are similar in nature but have distinct differences. When you’re talking about POA in this sense, you are talking about Medical Power of Attorney (not financial). The main difference between the two follows.

Durable Medical Power of Attorney can make any and all healthcare-related decisions for you should you suddenly become unable to make them on your own. 

A Living Will states your final wishes for end-of-life medical care. It appoints someone to ensure your declaration about life-saving measures (whether you want them, don’t want them or have specific ideas about how extensive they should be) are respected.  

What is a Financial Power of Attorney’s Responsibilities 

So, what does a Financial Power of Attorney do? In short, as little or as much as you want. You can write his or her powers to be very sweeping and broad, meaning they can do everything from making investment decisions to signing checks, or they can be appointed a very specific, limited duty, such as signing for one deal or transaction should you be unavailable. 

Some of the responsibilities and duties a Financial POA can perform might include:

  • Banking and other transactions

  • Beneficiary transactions

  • Claims/litigation

  • Estate transactions

  • Government benefits management (Medicare/Unemployment/Social Security)

  • Investment management

  • Making charitable gifts 

  • Paying bills

  • Property management

  • Retirement benefits

  • Safe deposit boxes

  • Tax issues

  • Trust transactions

  • And more...

A Financial Power of Attorney goes into effect whenever you appoint them. Often, language in the document will read as a safeguard to ensure someone is there to step in should you become incapacitated, but it could also be for a specific time period (for example, you will live abroad for 2 years, or you can’t make it to a signing for a real estate deal). As noted, Financial Power of Attorney extinguishes automatically upon your passing. At that point, the Executor of your Will or Trustee of your Trust would step in. 

How to Choose a Financial Power of Attorney

Choosing your Financial POA can be a bit daunting, but you want to take the time to make sure you’re confident with your decision and that you trust the person you name. In the long run, it will be well worth the time you’ll spend deciding. Of course the main consideration is trust - you’re literally putting your livelihood and financial security in the hands of someone else, so it’s important you choose wisely. 

From the trust aspect, it probably seems natural to select a family member who is close to you. But sometimes the POA you choose actually isn’t the person closest to you, as emotions can become a factor and the responsibilities could be burdensome. At the end of the day, as long as you’re placing a person you trust in the role, you'll be more confident in your decision. 

Wondering how to obtain a Durable Financial Power of Attorney? Establishing POA is relatively simple - the following steps break down the process:

  1. Determine need. Do you actually need a Financial POA? If you’re married and have joint assets, this may not always be necessary right now. Likewise, if you have a Living Trust holding your assets, and you’ve appointed a Trustee to act on your behalf, a Financial POA may not be a great need at this time. That said, a Durable Financial POA can still be a good idea, and they can be the same person as your Trustee.

  2. Choose your agent. Choosing who to make your POA can be difficult, but you can rely on the trusted people in your life to help you decide if you’re conflicted. Your family, your attorney, a counselor or even your faith leader, if you have one, can all be good resources.

  3. Review forms. Be sure you understand your state’s requirements and use state-specific forms if possible. You could also check with your bank and other financial institutions and organizations about preferred forms they want used. This will allow for easier recognition so they can more quickly approve a POA if necessary.

  4. Get POA notarized. Your Financial POA should be in writing and the signing should be witnessed and notarized. While POAs usually don't need to be filed with any agency, you should share it with the appropriate people in your life (friends and family and the agent you name as POA). Note that POAs related to real estate may need additional steps, such as being recorded.

  5. Review. You should review your Financial POA periodically to ensure the powers you allow are still appropriate. You should also consider if the agent you named is still willing and, most importantly, able, to act on your behalf. Update as needed.

Why do I Need a Financial Power of Attorney? 

A Financial Power of Attorney is a component of your Estate Plan that ensures financial matters in your estate and are handled appropriately and responsibly. Knowing that your financial responsibilities, investments, retirement, bills and everything else in your financial world is in good hands can be a great source of comfort. If you have any sort of financial responsibility or assets, you might want to consider establishing a Financial POA. 

Your Financial POA can be a tremendous asset in your life. He or she will have your best interest at heart and will protect the legacy you’ve spent your entire life building. Have more questions about Financial POAs? Reach out to us today or Chat with a live member support representative! 

Know you’re ready to start your Estate Plan to protect your family and immortalize your legacy, but not sure where to start? See what we have to offer at Trust & Will. Both our Trusts and our Wills come with healthcare documents, including financial Power of Attorney. So regardless of your needs, we’ve got you covered!