What is a Financial Power of Attorney?
As you start the estate planning process, you may have been advised to add a financial power of attorney to your estate plan. But what exactly is this and why do you need one in your overall estate plan? This guide will walk you through the details and help you understand when and why to add this document to your estate planning strategy.
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What is a Financial Power of Attorney?
If you become incapacitated—whether it’s temporary or permanent—a financial power of attorney is a legal document that gives someone else the authority to manage your financial affairs on your behalf during your incapacity. This appointed individual, known as your "agent" or "attorney-in-fact," can perform tasks ranging from paying bills and managing bank accounts to handling real estate transactions and investments, depending on the powers you grant them.
How is a Financial Power of Attorney Different from a Medical Power of Attorney?
Two documents are noted as “power of attorney” in the estate planning realm. One is the financial power of attorney and the other is the medical power of attorney.
The financial power of attorney is also referred to as a general power of attorney or a power of attorney of property. It allows the agent the ability to make decisions over your property, such as your finances and real estate holdings.
The medical power of attorney grants the agent power over medical decisions on your behalf. It does not grant them authority over your finances or other property.
Why is a Financial Power of Attorney an Important Part of Estate Planning?
Ensures Continuity: A financial POA ensures that your financial responsibilities are managed seamlessly if you become incapacitated or unavailable.
Protects Your Interests: By selecting a trusted agent, you can ensure that your financial matters are handled in a way that aligns with your best interests and financial goals.
Avoids Court Intervention: Without a financial POA, your family may need to seek a court-appointed guardian to manage your affairs, which can be time-consuming and costly.
Customizable Authority: You can tailor the powers you grant to your agent, giving them as much or as little authority as you deem necessary.
Types of Financial Powers of Attorney
Durable Power of Attorney: This goes into effect immediately and remains in effect if you become incapacitated, ensuring continuous management of your financial affairs.
Springing/Limited Power of Attorney: Only takes effect under certain conditions and requires a determination of your incapacitation before it can go into effect.
Durable vs. Springing/Limited Power of Attorney, Which One is Best?
Broadly speaking, most people put a durable power of attorney in their estate plan instead of a springing/limited power of attorney. This is because the process to put the springing power of attorney into effect can cause significant delays in your agent’s ability to perform their duties on your behalf.
Ultimately, the decision as to which power of attorney is best for you can be answered by an experienced estate planning attorney who can evaluate your unique situation and help you decide what strategy is right for you.
Do I Need a Lawyer to Create a Financial Power of Attorney?
While there are ways to create a DIY financial power of attorney, we always advise working with a trusted estate planning attorney to create these important, sensitive legal documents. These documents give someone a lot of power over your financial affairs, and an experienced attorney can ensure that you’re granting the right powers with the right limitations for your unique circumstances. They can also help support your agent through the process of carrying out this document if and when the time comes.
If you need a Maryland estate planning attorney who can help guide you through setting up a financial power of attorney step-by-step, give us a call at 301-456-0982 or fill out this form for a FREE consultation. We take pride in helping clients through every step of their estate planning journey so they can feel confident that their future is secure, no matter what life may bring.