- Financial power of attorney lets an individual give another adult the ability to act on their behalf in financial matters.
- An agent with a financial power of attorney can access financial accounts, pay bills, initiate new credit accounts, file taxes, and more.
- It’s important to only issue financial power of attorney when necessary and to limit the powers to those that are required.
- Financial power of attorney is often used when service members are deployed or when people become incapacitated and can’t manage their finances.
How Financial Power of Attorney Works
When an individual puts a financial power of attorney in place, they are permitting someone else to act on their behalf in financial matters. The person giving the power is called the “principal” while the person receiving the power is called the “agent” or “attorney-in-fact.”
If a person is in a situation where they want to assign financial power of attorney to someone they trust, they will need to find the power of attorney form that’s required by their state.
The form will typically ask who the principal is, who the agent is, and what powers are given. It may also ask how long the power of attorney will last. Also, you can designate a successor agent just in case the original agent dies. Finally, it may need to be notarized.
You don’t need a lawyer to prepare a power of attorney, but an attorney’s advice could be helpful when you’re crafting the terms of your financial POA.
Once approved, the agent will have the ability to act according to the powers given in the legal document. An agent given financial power of attorney can then take actions such as:
- Managing the principal’s retirement accounts
- Processing transactions with their bank and credit cards
- Filing and paying taxes
- Sell property
- Managing benefits from Medicare and Social Security
- Paying bills
- Withdrawing money from accounts
If no end date is provided on the power of attorney form, it will typically end when the principal dies. However, if mentally competent, the principal can revoke it at any time with another signed legal document.
Examples of Financial Power of Attorney
A woman is serving in the Navy and is deployed. However, she and her husband are trying to sell their house and buy a new one. All will likely be ready to go through while she is away so she assigns her husband financial power of attorney. As a result, he can sign the paperwork on her behalf.
In another situation, a man is diagnosed with dementia. In order to plan for his future incapacity, he puts a financial power of attorney in place naming his son as the agent. Further, the financial POA is “durable” which means that it will continue to be effective even when he is incapacitated.
Revoking Power of Attorney
In general, you can revoke a power of attorney by putting the revocation in writing and giving it to your agent. Other measures you should consider are asking the agent for any financial power of attorney documents they have, and sending the revocation notice to any financial institutions that received financial POA paperwork.
Check with your state’s attorney general to find any specifics or nuances about revoking a power of attorney.
An agent’s power of attorney can end if they die, resign, are removed by a court, become incapacitated, or are the principal’s spouse during a dissolution of marriage (unless otherwise noted in the financial POA).
Power of Attorney Abuse
POA abuse is, unfortunately, an issue. Therefore, it’s important to only use a financial power of attorney when necessary. You should also choose someone you trust, and ensure others are aware of the situation and are verifying proper management.
General Power of Attorney vs. Limited Power of Attorney
If you are assigning financial power of attorney to someone, you can decide how much authority they will have over your affairs. General power of attorney gives the broadest powers, whereas limited, or "special," power of attorney only authorizes the agent to handle specific affairs or situations. It’s generally best to limit the authority to the necessary minimum.