What does a Financial Power of Attorney do?

When managing your own financial affairs becomes challenging or impossible, having a Power of Attorney for Finances (FPOA) can be crucial. You, as the “Principal” are naming someone else to act as your “Agent” or your “Attorney-in-Fact.”  This legal document allows you to appoint a trusted individual or corporation to handle your financial matters on your behalf. Responsibilities may include tasks like opening or closing bank accounts, paying bills, selling property or your car, applying for public benefits like Medicaid, and managing other financial duties. Your Power of Attorney can have a lot of responsibility.

An FPOA can be tailored to suit your needs in two primary ways:

1. Immediate Power of Attorney: This type of FPOA grants authority to your agent right away. This means the designated person can act on your behalf as soon as the document is executed (signed) and will continue to do so in the future if necessary.  Most FPOA documents are drafted so that they are “durable,” meaning, the authority to act on your behalf continues even if the person now is incapacitated.  You can still manage your own affairs, but you are giving someone else the right to manage them as well. 
2. Springing Power of Attorney: This version becomes effective only upon the occurrence of a specific event, typically when an individual becomes incapacitated. This means that someone else will have access or control of your finances only upon your incapacity.  Incapacity can encompass various scenarios, such as mental illness, physical disability, advanced age, or unusual situations like being kidnapped. The FPOA document itself will usually define what constitutes incapacity, and a medical evaluation by your doctor, and possibly two doctors, will be required to confirm it.

While a springing FPOA provides safeguards because no one will be able to act as your POA and access your money until you are incapacitated, it comes with its own set of challenges. The process of determining and proving incapacity can be complex and may create delays. If you need a doctor to examine someone and assess their capacity to make financial decisions, you might be waiting several weeks or months to get a doctor’s appointment (especially if you haven’t seen a doctor in a long time).  This can be stressful in urgent situations where immediate access to your financial affairs is needed. For some individuals, the certainty of an immediate FPOA outweighs the potential complications of a springing FPOA. However, the choice depends on your personal preference and circumstances. Understanding both options and their implications will help you make an informed decision about the best approach for your financial planning.

A Power of Attorney is different from just adding someone to your bank account. (You do want to think long and hard about adding anyone outside of your spouse as a joint owner on anything.). If you name a Power of Attorney, that person will have access to your bank account as your Agent (or “POA”) but will not be an owner of the account. A POA is a “fiduciary” and has a legal responsibility to manage your funds in the way that you would.