What Is a Financial Power Of Attorney?
A financial power of attorney (POA) is a legal document that grants a trusted agent the authority to act on behalf of the principal-agent in financial matters. The former is also referred to as the attorney-in-fact while the principal-agent is the person who grants the authority. This kind of POA is also referred to as a general power of attorney.
- A financial power of attorney is a legal document that grants a trusted agent the power to make and execute financial decisions for a principal-agent.
- In some states, financial powers of attorney are automatically considered durable which meaning they remain in effect after the principal becomes incapacitated.
- A financial power of attorney letter is automatically extinguished upon the principal's death.
Understanding a Financial Power Of Attorney
A power of attorney (POA) is a legal document that allows a person the authority to act on behalf of someone else. The authority outlined in the POA can be fairly broad or, in some cases, restrictive, limiting the agent to very specific duties. Agents named in POAs are legally able to make decisions about the principal's finances, property, and/or medical health. Most POAs are issued when the principal is ill, disabled, or is physically not present to sign important paperwork.
A financial power of attorney document is also referred to as a general power of attorney or a power of attorney of property. This POA gives the agent the power to manage the financial life of the principal when he or she is unable to do so.
The agent can legally manage the principal's finances and property, make all financial decisions, and conduct all financial transactions that are within the scope of the agreement. He or she is limited to the agreement and cannot do anything not specified under the power of attorney. The agent is legally obligated to make decisions consistent with the wishes of the principal but has full authority to make autonomous decisions until that authority is challenged and/or revoked in a court of law.
In some states, financial powers of attorney are automatically considered durable, meaning they remain in effect after the principal becomes incapacitated. In others, if the principal wants them to be durable, they need to include that information in the power of attorney in addition to other specifics about the powers the principal is granting.
Some states consider financial powers of attorney durable which means they are valid after the principal becomes incapacitated.
Most states have simple forms to fill out to make someone your financial agent. Generally, the document must be signed, witnessed, and notarized.
If the agent is expected to negotiate real estate assets on behalf of the principal, some states require that the document must be placed on file in the local land records office. Finally, many banks have their own forms, and while it is not required, it makes the process much easier if the bank is notified about the identity of the financial agent.
A financial power of attorney is automatically extinguished upon the principal's death. That means the agent can only make financial decisions for the principal while they are alive. To deal with financial matters after the principal's death, an executor will have to be named in the principal's will. An executor carries out specific instructions to manage the wishes and affairs laid out by the deceased party.
Financial Power of Attorney vs. Other Powers of Attorney
A financial power of attorney is just one type of POA. There are many other kinds, depending on the purpose.
Limited Power of Attorney
A limited POA gives the agent very limited power and normally gives a specific end date for the agreement. For example, someone may appoint a family member or friend as a limited POA if they are not available to sign important paperwork themselves at a specific time. In other cases, this POA may give the agent the ability to make cash withdrawals from the bank for the principal. A limited POA is also a type of nondurable power of attorney.
Health Care Power of Attorney
This kind of POA is also called a medical power of attorney. It gives the agent the authority to make important medical decisions about the principal's health care especially when he or she becomes incapacitated.
Springing Power of Attorney
A springing POA only goes into effect once the principal becomes incapacitated and cannot make decisions on their own. In order to be effective, the document should outline the exact definition of incapacity so there is no confusion as to when the agent can begin acting on the principal's behalf.
Example of a Financial Power of Attorney
Marco is planning an extended stay abroad that will last for three years but he has financial obligations related to his property and investments in his hometown. He prepares a financial power of attorney for his father, who will remain in the city to execute financial dealings. This includes writing checks and signing important documentation related to his investments and property.