What is a power of attorney? It’s a document you sign that grants another person the power to act on your behalf in case you are unable to do so. It doesn’t take long to set up and it doesn’t cost much. And once you do set it up, you’ll have a great deal of peace of mind.
Why?
Well…because the power of attorney gives someone else the legal power to take care of you, like I said before. You could get sick or have an accident. What if you have inherited IRAs and need to take distributions but can’t sign your name?
In special cases like these, you need someone to handle your affairs. If you don’t make provisions for it now by setting up the power of attorney, the courts could eat up lots of your money doing it for you when the time comes. Worse, someone could get their hands on your money and munch it all up. Bye bye.
A power of attorney allows the person you name to pay your bills, invest your money, make retirement plan decisions, etc. Basically, it allows someone to do what you could do with your money if you could.
There are two kinds of powers of attorney:
1. Durable power of attorney. This basically grants all the powers the minute you sign the document.
2. Springing power of attorney. This is a power that only springs into effect once you are incapacitated…or dead.
What’s to stop someone from taking advantage of having a power of attorney? Well…if you use a springing power of attorney, nobody can do anything with your money unless and until you are deemed incapacitated. Usually, the physicians must say so in writing.
Regardless, you should name someone you trust and someone who is familiar with financial matters. Where can you get the forms?
You can get them for free at the library, at very low cost at Legal Zoom or have an attorney draft the document for you. If you have a living trust, the power of attorney is usually included.
What are the biggest problems with power of attorney?
In my opinion, the biggest problem with the power of attorney is if you need one and don’t have one. It’s a nightmare and it’s costly.
The second problem is if you have one but the financial institution you are working with doesn’t honor it. There are other real problems with using a Power of Attorney – and you should be aware of them – and consult with a qualified attorney before creating this document.
There is no guarantee that your bank or brokerage firm will accept your power of attorney. As a matter of fact, most financial institutions have their own documents.
The smartest thing you could do for yourself is to make sure your financial institution accepts your power of attorney before the need arises.
How?
Just send it in and ask their legal department to review it. They should be able to give you an answer.
Do you have any horror stories of people in your family or people you know who needed a power of attorney and didn’t have one?
My father-in-law’s health has been rapidly deteriorating so we recently had a durable power of attorney drawn up so my wife can make decisions on his behalf if he becomes unable to do so for himself. I recommend it to anyone with health or age concerns.