A Power of Attorney (POA) is created for the purpose of giving designated people the power to make financial decisions on your behalf if needed. This can include banking, paying bills, or selling property. If you lose the physical or mental ability to manage your own financial affairs, a POA can avoid expensive and lengthy court intervention by allowing your agent to efficiently and independently handle your finances. Many misconceptions exist about the purpose of a POA, the powers your agent has, and when a POA will come into play.
MISCONCEPTION:
All Powers of Attorney are the same.
Not all Powers of Attorney are created equal. Typically, the term “Power of Attorney” refers to a financial POA. This is not to be confused with a Health Care Power of Attorney, which gives your chosen agents the ability to make healthcare decisions on your behalf and is a completely separate document. Financial POAs can differ in the scope and commencement of your agent’s powers. For example, a Durable Power of Attorney can become effective upon signing, meaning your chosen agent immediately has the power to act on your behalf if needed. In comparison, a Springing Durable Power of Attorney becomes effective only if and when some trigger event occurs, such as your incapacitation. A knowledgeable estate planning attorney will be able to discuss your options with you and create a POA that best fits your wishes.
MISCONCEPTION:
All entities will accept any Power of Attorney, and any form will do.
Not only do laws vary state-by-state for what is considered a legally valid POA document, but certain entities or agencies have their own requirements for what they consider an acceptable POA as well. Because of this, it is strongly advised that you not create your own POA. Several “DIY” forms exist online, but many of these do not conform to certain requirements and will be considered void.
MISCONCEPTION:
A Power of Attorney is still valid after death.
A Power of Attorney is only valid for the duration of your life. It becomes void after death. After death, your financial assets will be dealt with by your estate. This is when certain documents such as a Trust or a Last Will & Testament come into play.
MISCONCEPTION:
My spouse automatically has Power of Attorney for my financial affairs.
Marriage does not automatically grant legal authority for one spouse to manage the other’s financial affairs such as signing contracts or accessing bank accounts. Many assets are still considered to be individually owned and cannot be managed by another individual, even a spouse, without a valid POA in place.
MISCONCEPTION:
My agent can do whatever they want with my assets.
An agent is legally bound to act in your best interest. Signing a POA does not give your agent the right to act however they want to with your finances. Just because they have the power to independently deal with your affairs does not mean they have the right to do anything they want. To give an analogy, it’s like giving a key to your house to your trusted neighbor – they’re allowed to come into your house, but they’re not allowed to steal your belongings and ruin your home.
MISCONCEPTION:
I will lose power over my own finances if I sign a Power of Attorney.
While your agent can act on your behalf if needed, they can’t have power over you and your finances when you’re able to make decisions for yourself. As mentioned above, your agent is also legally bound to make decisions in your best interest.
MISCONCEPTION:
Someone who is incapacitated can appoint a Power of Attorney agent.
Nobody can sign legal documents such as a POA if they do not have the physical or mental capabilities to do so. If a person is deemed incompetent at the time of signing a POA, the document will be invalid. This is why it is important to create a POA while you are still capable and before it becomes necessary to put into use.
MISCONCEPTION:
I can only appoint friends or family members as my Power of Attorney agent.
While it is a common route to choose friends or family members who are familiar with your financial assets, it is also possible to list professional fiduciaries to act as your POA agent. It is important to list agents who are trusted, knowledgeable, and financially responsible, and this service helps ensure clients will have an agent that will act in their best interest if their loved ones are unwilling or unable to do so. There are professionals who offer this service in the Asheville area we would be happy to connect you with.
If you are interested in creating a Power of Attorney for yourself, our attorney April Burt Schain is happy to discuss any questions you may have and can create a POA document that best fits your personal needs. Please contact us for a free estate planning consultation to begin.