What is a 'Financial Power Of Attorney'

A financial power of attorney grants a trusted agent (also called an attorney-in-fact) the authority to act on behalf of the principal (the person granting authority) in financial matters.

BREAKING DOWN 'Financial Power Of Attorney'

The financial power of attorney (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. (See Power Of Attorney: Do You Need One?)

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 his or her 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, he or she needs 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

Most states have simple forms to fill out to make someone your financial agent. Most states don't require that the principal use these forms, but it is considered prudent to do so. Generally, the document must be signed, witnessed and notarized. To notarize is to certify a legal document via a notary public. Notaries act as government agents to witness the authenticity of signatures appended to legal attestations.

If the agent will have 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 not strictly necessary, it will make the process much easier if the bank is notified about the identity of the financial agent.

The financial power of attorney is automatically extinguished upon the principal's death. That means that the agent can only make financial decisions for the principals while he or she is alive and incapacitated. To deal with financial matters after the principal's death, an executor will have to be named in the principal's will.

RELATED TERMS
  1. Special Power Of Attorney

    Special power of attorney is a written authorization that grants ...
  2. Power of Attorney of Property

    Power of attorney of property is a legal document that transfers ...
  3. Principal

    Principal is the amount borrowed on a loan or put into an investment.
  4. Power of Attorney

    Power of attorney is a legal document giving a person broad or ...
  5. Agency Theory

    The agency theory is a supposition that explains the relationship ...
  6. Paying Agent

    A paying agent is an agent who accepts payments from the issuer ...
Related Articles
  1. Retirement

    The Importance of Durable Financial Power of Attorney

    Having a durable financial power of attorney in place can save you from having the court decide who handles your finances when you can't.
  2. Retirement

    Don't Give Away Control Over Your Assets Without Planning

    Most people don't realize what they agreed to when they signed a power of attorney, and are blissfully unaware of the possible harm from poor planning.
  3. Managing Wealth

    Why Keep Medical & Financial Powers of Attorney Separate?

    Representing your interests in financial matters is a very different job from communicating and advocating for your wishes with doctors.
  4. Retirement

    Power of attorney: When you need one

    Having a power of attorney ensures that you select who will act for you when you are unable to handle your affairs. Without one, the courts decide.
  5. Investing

    Attention Home Buyers: Why You Need a Lawyer

    Property transactions are complex and subject to specific state/local rules. Hiring a lawyer can simplify the process.
  6. Financial Advisor

    How to Find the Best Life Insurance Agent

    Choosing a life insurance agent is the first and most important step in obtaining coverage. Buyers should pay attention to five key factors.
  7. Retirement

    Estate Planning You Must Have

    Understand what you need to know in your estate planning even if you don't have significant assets. Here are six essential things to have for successful planning and seamless asset transfer.
  8. Personal Finance

    If Your Kid Is 18, You Need These Documents

    When your child turns 18, you lose many of your rights as a parent. Here's how to regain them with the proper legal documents.
  9. Investing

    How Real Estate Agent and Broker Fees Work

    Buying or selling a home? What you need to know about real estate agent and broker fees.
RELATED FAQS
  1. What are the responsibilities of the principal in a company?

    Learn what a principal is as it relates to business management, and the differences between all the meanings. Find out what ... Read Answer >>
  2. What is the role of agency theory in corporate governance?

    Understand how businesses use agency theory in corporate governance. Learn how moral hazard problems may be addressed using ... Read Answer >>
  3. What do real estate attorneys do?

    Understand the role of a real estate attorney, professionals specialized in legal matters related to property, to help you ... Read Answer >>
Trading Center