People frequently devote their efforts to their wills and trusts. Choosing a person to serve as their power of attorney is often a last-minute decision.
Forbes’ article, “9 Things You Need To Know About Power Of Attorney,” reminds us that it’s an important decision and not one that should be taken lightly. Let’s look at what you need to know to get your POA right.
Understand what it means. With a POA, you select a person as your attorney-in-fact (or agent) to make financial decisions for you. This gives your agent control over any assets held in your name alone.
Look at your options. There are two types of powers of attorney. A durable power of attorney is effective when you sign it. It survives your incapacity. A springing power of attorney goes into effect when you’re incapacitated. A springing power of attorney is more difficult to use. Your agent must prove that you’re incapacitated, usually through some written confirmation by one or more physicians. Even though the document states how to do that, banks frequently are hesitant to make that determination. Thus, most attorneys advise you to execute a durable power of attorney and often will hold the original POA until it is needed, as an extra protection.
Make a wise decision. You may wonder if your agent can steal your money, and unfortunately, the answer is “yes.” Your agent will have access to your financial accounts and could use your funds for his own benefit. The agent has a fiduciary duty to use the assets only for your benefit or as you direct in the document, so you could later sue the agent for theft and misuse of your funds.
Abuse. Depending on the terms of the power of attorney, your agent may have the ability to amend the ownership of your bank accounts or change your beneficiary designations. This is common in second marriages. The transfer often occurs right before the spouse passes away, typically when the husband is dying in the hospital. If the husband’s will leaves his large bank accounts to his children from his first marriage, the second wife with power of attorney can add herself as a joint owner of the account. When the husband dies, she’s the surviving joint owner and liquidates the account. Siblings also do this to direct mom’s assets away from their brothers or sisters.
Look at naming two agents to act together. If your state permits this, it’s often worth the extra effort to have an extra pair of eyes on the use of the POA.
Designate an alternate. If your agent dies before you or is incapacitated, you should appoint a back-up who can act.
Read through the document. Take a look though the powers listed in the document and make sure you’re comfortable with what it allows.
The POA dies with you. Once you pass away, the POA is no longer valid. Your will then controls what happens to your assets.
Your revocable trust should be funded. If you fund your trust during your lifetime, you may not need to use your power of attorney. However, you should still have one just in case. Ask an experienced estate planning attorney about this.
Reference: Forbes (September 12, 2019) “9 Things You Need To Know About Power Of Attorney”