Understanding the basic tenets behind power of attorney is important for good financial planning. Here, we’ll explore what it is, why it’s important, and how it relates to other aspects of estate planning.
What is power of attorney?
Power of attorney, or POA, is a legal document or set of documents where you grant another person (called the agent of attorney) the power to act on your behalf in certain circumstances. These documents are sometimes referred to as a “living will,” as they can also be used to give someone the legal right to act for you if you become incapacitated.
Power of attorney documents can be as broad or limited as you want. Generally, they will cover your financial affairs or your medical needs. They can cover both, but usually you will have separate documents for each. POA documents can also be tied to a bank account or can be tailored to a specific situation, such as representing you in a real estate transaction in another city. In each case, these documents give someone else power to act on your behalf. You can use a broad POA to put someone in charge of all your financial and healthcare decisions, or use a limited and restricted POA as a one-off to allow another person to represent you in a specific set of circumstances and/or for a limited time period.
Why is power of attorney important?
Power of attorney is important because you never know when adverse events may occur. If you become disabled, you’ll want to be taken care of and to know your bills will be paid. It protects your finances, real estate, and health. Furthermore, if you are incapacitated without a document in place, your loved ones cannot simply “get” power of attorney. Instead, a court will appoint a guardian. In this case, your family can control who that will be, or when the court will finish deliberating.
When should I set it up?
There’s never a bad time to think about your future and what you’d want to happen should adverse events occur. Logical times to establish a POA include when you have a property that is only in your name (but you also have a spouse who you would want to be able to control the property if needed), when you write your will, or before going on extended travel overseas. You may also want to consider setting up power of attorney if you enjoy higher risk or extreme sport activities like rock climbing or downhill skiing, etc. If you haven’t got a will in place yet or none of the above applies to you, it’s still never a bad idea to get started.
Who do I choose?
Putting someone in charge of your healthcare and financial affairs is a big decision. Your spouse or partner is often the best pick but another close relation can work too. Adult siblings, adult children, close friends, or business partners can all be good options. Regardless of the relationship, make sure to pick someone you trust and feel you can depend on, and who can handle the task emotionally. If you are looking for someone to manage your financial affairs, you need to also be sure to select someone who has the financial acumen to do the job.
Like a will, it’s important to discuss this subject in advance with the person you have in mind. No one wants to wake up one day to find out their friend or parent is in a coma and they are now in charge.
How do I get started?
If you’re unsure how to get started, try talking to friends or family who may have already established POA for themselves. Chances are good that they will be able to point you in the right direction. If that’s not an option for you, connect with a local lawyer and take it from there.
Summary:
Power of attorney, or POA, is an important legal document, or set of documents, wherein you grant another person power to act on your behalf. Power of attorney is generally written in conjunction with your will. Taken together, these documents are the cornerstones of good estate planning.
POA will be prepared in order to address your financial affairs or medical needs should something happen to you. Regardless of what your future holds, you probably want to have the peace of mind of knowing your health and your finances will be taken care of if needed. Therefore there’s never a bad time to consider arranging power of attorney. When choosing someone to represent you, make sure that they are up for it, that they have the skills to pull it off, and most of all, that you trust them. If you’re unsure of how to get started, speak to friends or family who may have already established a power of attorney, or seek out a local legal professional.
If you’ve found this topic interesting or are looking at all things estate planning, check out my previous post on Writing a Will.
Disclaimer
Please keep in mind that I am not a financial advisor, and the opinions expressed are my own. My Money Moves does not provide financial advice – it is an informational website that details my own approach to my own money and personal finances. If you need specific financial help or guidance, please do your own research, and seek out a professional who can work with you to reach your goals.
