What Is a Financial Power Of Attorney?
A financial power of attorney (POA) is a legal document that grants a trusted agent (also called an attorney-in-fact) the authority to act on behalf of the principal agent (the person granting authority) in financial matters.
- 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," 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 financial power of attorney document (also referred to as a general power of attorney or a power of attorney of property) 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 (unless the power of attorney specifically limits their authority). 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 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.
Filling Out a Financial Power of Attorney Document
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 that 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.
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.