Power of Attorney
When you are ill or incapacitated — either for the short- or long-term — you’ll need someone to pay your bills, make investment decisions and handle other financial matters. A Power of Attorney is the document that will help in this situation. You may have heard it called Financial Power of Attorney or General Power of Attorney because it usually addresses only matters regarding your property, money, and assets. While the use of the term “general” is often used, a power of attorney can be as broad or narrow as needed by you. The person who makes your decisions is called your agent. Whoever you choose has a fiduciary duty to follow your directions as set forth in the document.
Types of Powers of Attorney: Which one is right for you?
Depending on your circumstances, there are several types of powers for you to choose
- A general power of attorney gives your agent broad powers to act on your behalf, including managing all your financial transactions, signing documents, settling claims, operating your small business and any other financial duties you specify. However, in many states, it ends when you become incapacitated.
- A limited power of attorney is written, most often, to address one or two matters, many times for just a short duration. For example, if you went out of the country for a few weeks or if you will have surgery that will prevent you from conducting your business for a while.
- A durable power of attorney is one that becomes effective upon you becoming incapacitated, and continuing during your incapacitation even in those states that have a incapacitation statute. Your agent can then manage your affairs without need for a guardianship or conservatorship. However, a durable power of attorney will end upon your death.
Also, the IRS will require a tax power of attorney if you wish an attorney, accountant or other person to conduct business on your behalf. It is a common form that is completed and sent to the IRS. It only affects tax matters. It has no power over your other financial affairs.
Remember, your power of attorney ends upon your death or if your revoke it. Also, if you want the same person to manage your financial affairs after your death, you should name that person as the Personal Representative in your will.
The type that is right for you is very individualized. My clients have often started with a general power of attorney, but we have often reduced the power based on my client’s needs. Also, why is the Durable Power of Attorney not combined with the Durable Power of Attorney of Healthcare (DPAHC), many ask. It is because the DPAHC is given to hospital or nursing home administrators for their records. Most people do not want any hint of their financial situation exposed to others.