At some point or another you’ve likely heard the phrase “power of attorney,” but you might not know its purpose or when to use it. You may even wonder, “What is it? How does it work?” Here, we’ll cover the basics of power of attorney and how it could benefit you.
What is a power of attorney?
A power of attorney form (or letter of attorney) allows you to choose a person or organization to handle your legal, financial, or health care matters if you’re unable to take care of them yourself.
A person who has a power of attorney is called the “principal.” The chosen person or organization is known as an “agent” or “attorney-in-factfinancialf.”
The principal must sign the power of attorney and must be mentally competent at the time of signing for the document to be legally binding.
All powers of attorney end upon the death of the principal. If you are an agent, and the principal dies, you can no longer legally sign for anything as the person’s agent. Doing so could be used against you if there are any disputes with creditors or the principal’s heirs.
Why do I need a power of attorney?
Because life happens. An accident, long-term illness, long-term absence out of the country, disability and more can happen at any time. It’s tough to think about, but if something happens to you, what happens to all the things you normally do yourself? Who would pay bills for you, make sure medical paperwork is complete or monitor your financial accounts?
Unfortunately, many people forego this type of preparation because it’s too grim to think about. However, if you don’t have a power of attorney, your loved ones may be climbing an uphill battle with large expenses and legal procedures just to set up guardianship.
By having a power of attorney created ahead of time, an unexpected event won’t cause further hardship and the agent you selected can carry on with their responsibilities on your behalf.
How do I get power of attorney?
While you can find power of attorney forms online, it’s a good idea to contact a lawyer to help you make sure it’s completed correctly, especially if your assets include quite a bit of money and real estate.
If the form is not completed properly, it’s essentially useless.
Once the document is signed, it should also be notarized, which allows the form to be recorded for real estate transactions and makes it difficult for someone to challenge its validity.
Can I change my mind?
Yes, you can revoke or cancel your power of attorney. To do so, you must notify in writing your agent, as well as any place or institution where your agent was used, that the power of attorney is revoked. Alternatively, you can revoke your power of attorney by specifying an expiration date on the document.
What should a power of attorney include?
It’s important to discuss with a lawyer specific powers you’d like to include in the provisions of the document. Here are just a few you might consider:
- Ability to handle tax and IRS-related matters
- Power to create and amend trusts
- Responsibility for handling retirement accounts and investments
- Capability to make monetary gifts
What if something happens to my power of attorney?
If the person or organization you selected as your agent either cannot serve (due to various reasons) or refuses to serve, you have the ability to appoint a successor agent who can take over if necessary.
This is just a brief explanation of the purpose of a power of attorney. It’s important to think about obtaining a power of attorney before something unfortunate happens. By being proactive, your loved ones will not have to deal with additional difficulties or hardship due to legalities.
Check back soon, I’ll be reviewing the various types of power of attorney that are available based on your needs.