One estate planning document likely to come into play sooner rather than later, for most people is a power of attorney. Powers of attorney allow you, the principal, to name someone else to act on your behalf if you are unwilling or unable to act.
While there are several different kinds of powers of attorney, a financial POA can be used to ensure that you can still manage your bills and other money-related tasks even if you’re not the one executing those tasks.
Powers of attorney can be given for broad financial powers or for very specific instances. It can be nerve-wracking to name someone else with broad powers to act on your behalf with regard to finances.
With a general power of attorney, you allow your agent to handle any financial issues in your place. This means your agent can do anything you could do, such as making gifts, setting up investments, selling assets, or transferring funds.
There are several examples of situations in which a general financial power of attorney could work well. A spouse, for example, might name their partner under a general financial power of attorney so that the partner has access to all accounts. Likewise, an adult child helping an aging parent with a range of financial tasks might need a general power of attorney to carry out those responsibilities.
However, there are several reasons to consider when it makes more sense to choose a limited or specific power of attorney. If there is no need to grant someone sweeping financial powers in your life, give yourself the peace of mind of limiting those powers to very specific circumstances. Giving someone full authority over your finances could allow them to make decisions that you did not want. Legally, if your POA was general, your agent has discretion on these matters, even if you would not have supported the actions they took.
There are three primary ways to do this: allowing specific actions, limiting the power of attorney to acting in specific period, and naming triggering events.
With specific actions in a limited power of attorney, you grant your agent the ability to carry out one or more specific tasks. For example, you might give your CPA power of attorney to pull your previous year tax returns and speak with the IRS on your behalf. You might give your real estate agent power of attorney to sign closing documents at an out-of-state real estate transaction. With these limited powers, your agent is fully capable of carrying out the task at hand, but you don’t have to worry about potential overreach. You can also use restrictions to limit what they can do, such as allowing them to help with checkbook balancing, but not making gifts.
If you know you’ll only need help during a particular time period, you can give your agent authority to act within that window. This is appropriate if you have an out-of-country trip planned, are undergoing surgery, or have some other short-term need.
Finally, triggering events are those events that must occur in order for your agent to obtain authority over the document. For example, you can declare a sudden illness as an event that enables your agent to take action.
While it’s still important to choose someone you trust as your power of attorney agent, you might feel more comfortable limiting their powers. Discuss your options with an experienced estate planning lawyer for more support.
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