A power of attorney may be used to authorize another individual to execute a contract on the principal’s behalf.
A lasting power of attorney is important documentation. Nonetheless, it is often disregarded during estate planning. Individuals often focus their effort on their will and trust, appointing a power of attorney at the last minute. This is a significant decision that should not be handled carelessly. Here’s what you must know to complete this procedure successfully.
What Is a Power of Attorney for General Purposes?
A general power of attorney authorizes a person or organization to act on your behalf (referred to as an agent or attorney-in-fact). These authorities include the ability to conduct financial and commercial transactions, purchase life insurance, settle disputes, operate commercial interests, make contributions, and hire expert assistance.
A general power of attorney will be a useful approach if you will be traveling and require someone to manage certain things or if you are physically or psychologically incapable of handling your own affairs. A general power of attorney is frequently included in an estate plan to ensure that financial problems are handled properly.
What Is a Power of Attorney for Special Purposes?
By signing a particular power of attorney, you may define precisely what powers an agent may wield. This is often utilized when individuals cannot manage specific matters due to other obligations or health concerns.
Selling property (real and personal), collecting debts, managing real estate, and executing commercial transactions are all frequent objectives for a special power of attorney documentation.
Understand the Authority
You appoint somebody as attorney-in-fact to make financial choices on your behalf via a power of attorney. The authority empowers your agent to exercise power across any assets owned by you. If you possess a bank account in your own name, it will be accessible to your attorney-in-fact. If you transfer an asset in your trust, the trustee acquires ownership of the asset.
Two different categories of powers of attorney exist. When you sign a lasting power of attorney, it becomes effective immediately and outlasts your incapacity. When you become incompetent, a power of attorney takes place. While a power of attorney seems more appealing to most people, it is really more difficult to implement.
Your agent must persuade the financial institution that you are incapacitated, and even though the paperwork details how to do so, your local bank often refuses to make that conclusion. Often, your attorney is required to intervene. As a result, the majority of lawyers recommend that you acquire a lasting power of attorney. Sometimes, the attorney will retain the initial power of attorney until it is required for further protection.
Make Careful Selections
“Can my agent take my money?” is a commonly asked question. Unfortunately, the answer is “yes,” as they would have access to your bank accounts. There is ample opportunity for them to access and exploit your funds for their own interest. The agent is under a fiduciary obligation to utilize the assets exclusively for your advantage or as directed in the agreement. As a result, you might eventually sue the agent for stealing or misusing your cash. However, if the agent has spent their funds, you may be unable to reclaim anything at all from them.
Abuse is Common
Depending on the power of attorney’s terms, your agent may have the authority to modify the possession of your bank accounts or beneficiaries. This is a frequently occurring issue in second marriages. The transfer often happens shortly before the spouse dies, most commonly while the spouse is slowly dying.
For instance, if the husband’s will includes his children from his previous marriage as joint owners of certain significant bank accounts, the current wife, operating under a power of attorney, might also add herself as the account’s joint owner. When the husband passes away, the second spouse becomes the remaining joint owner and is responsible for the account’s liquidation. The bank account does not need probate, and indeed the children never get half of their father’s money. This happens frequently. Siblings often still utilize it to divert their mother’s assets away from their siblings.
Consider appointing two representatives to act in concert if your state permits it. While having two representatives might be inconvenient, it is often worthwhile to have a second pair of eyes on the power of attorney’s usage. This may significantly lower your risk and guarantee that your assets are distributed according to your wishes in your will. If your designated representative dies or becomes incompetent, you’ll want a backup who can act. Additionally, consider appointing a guardian or custodian in a power of attorney if one is required in the future.
Review the Document
This may seem self-evident, yet customers often fail to read their papers. Examine the document’s stated authorities. For example, would you like your agent to have the authority to change a revocable trust you established during your lifetime? Consult with your attorney in specific instances.
There are several reasons to get a power of attorney, including the assurance that someone would manage your personal finances if you become incompetent. You should select a trustworthy family member, a well-known acquaintance, or a respected and trustworthy expert.
Bear in mind, however, that obtaining a power of attorney granting extensive power to an agent is very similar to signing a blank check, so use caution and be aware of the legal requirements.