When mapping out your estate planning goals, don’t forget to take yourself into consideration. Yes, your goals will likely revolve around current family and even future generations of family, but you shouldn’t discount yourself. What would happen if you suddenly became incapacitated and could no longer make important financial decisions? Because of situations like this, it’s crucial to entrust a financial power of attorney (POA) in your estate plan.

What’s A Financial POA?

Without a POA, if you become incapacitated because of an accident or illness, your loved ones won’t be able to manage your finances without going through the lengthy and expensive process of petitioning the court for guardianship or conservatorship. Executing a financial POA, also known as a POA for property, protects your family from having to go through this process and helps ensure financial decisions and tasks won’t fall through the cracks.

This document appoints a trusted representative (often called an “agent”) to make financial decisions on your behalf. It authorizes your agent to manage your investments, pay your bills, file tax returns, and otherwise handle your finances, within the limits you set.

Differences Between Springing & Durable POAs

One important decision you’ll need to make is whether your POA should be “springing” — effective when certain conditions are met — or nonspringing (also known as “durable”), which is effective immediately.

A springing POA activates under certain conditions, typically when you become incapacitated and can no longer act for yourself. In most cases, to act on your behalf, your agent must present a financial institution or other third party with the POA as well as a written certification from a licensed physician stating that you’re unable to manage your financial affairs.

While a springing POA lets you retain full control over your finances while you’re able, a durable POA offers some distinct advantages:

• It takes effect immediately, allowing your agent to act on your behalf for your convenience, not just when you’re incapacitated.
• If you do become incapacitated, it allows your agent to act quickly on your behalf to handle urgent financial matters without the need for a physician to certify that you’ve become incapacitated. With a springing POA, the physician certification requirement can lead to delays, disputes, or even litigation at a time when quick, decisive action is critical.
• It may also be advantageous for elderly individuals who are mentally capable of handling their affairs but prefer to have assistance.

 
Durable POAs have one potential disadvantage that must be considered: You might be uncomfortable with a POA that takes effect immediately because you’re concerned that your agent may be tempted to abuse their authority. However, if you can’t fully trust someone with an immediate POA, it’s even riskier to rely on that person when you’re incapacitated and unable to protect yourself.

In light of the advantages of durable POAs and the potential delays caused by springing POAs, consider granting a durable POA to someone you trust completely, such as your spouse or one of your children. If you’d like added security, you could ask your attorney or another trusted advisor to hold the durable POA and deliver it to the designated agent only when you instruct them to do so or you become incapacitated.

Revisit & Update Your POAs

A critical estate planning companion to a financial POA is a health care POA (also known as a health care proxy). It gives a trusted person the power to make health care decisions for you. To help ensure that your financial and health care wishes are carried out, consider preparing and signing both types of POA as soon as possible.

Also, don’t forget to let your family know how to gain access to the POAs in case of an emergency. Finally, financial institutions and health care providers may be reluctant to honor a POA that was executed years or decades earlier. So, it’s a good idea to sign new POAs periodically. Contact us with any questions regarding POAs.