The Definition of a Durable Financial Power of Attorney

Most people know that they need a will to dictate what happens to their financial assets when they pass on. Few people go through life completely able to take care of their financial affairs at all times. If you are incapacitated due to an accident or illness, it is important to have a plan in place to take care of your money. In the United States, this takes the form of a durable power of attorney.

Function

• A power of attorney, commonly called a POA, is a legal document authorizing someone else to act on your behalf. Powers of attorney may be created for a very specific purpose, such as the sale of stock, or they may grant more general authorization.

  A durable financial power of attorney will state that it cannot be altered due to the passage of time or disability of the principal (the person setting up the POA). This is important -- a POA that does not contain this language will cease to be effective once you become disabled, the exact opposite of what you need.

Attorney-in-Fact

• The person you authorize to act for you is known as an Attorney-in-Fact -- AIF -- or simply as your agent. The law states that this person must be competent to make decisions and at least 18 years of age. Beyond that, the decision is up to you. Select a person that is trustworthy and understands your financial goals and desires. You may choose to appoint more than one person, either to act in tandem with your AIF, or to serve as a backup should your original AIF become incapacitated themselves.

  Your agent(s) is legally obligated to act in your best interests when managing your finances and can be held liable for any malfeasance. POA documents typically give guidelines for how to determine wrongdoing and outline corrective actions.

Time Frame

• Unless you state otherwise, POA documents are effective immediately. This is appropriate in certain situations, like when a person has a degenerating illness, but is unnecessary if the POA is drafted as a preventative measure. If you are using the POA to plan for future events, you can specify the circumstances under which it will become active. This is often referred to as "springing" or a "springing power of attorney," from the phrase "to spring into action."

  In medical cases, it is a good idea to sign an authorization form allowing your AIF access to your medical information. This will enable your doctors to communicate with your AIF and determine when you are truly incapacitated.

Features

• Durable financial powers of attorney usually give the agent the ability to manage all financial affairs on your behalf. This includes (but is not limited to) signing checks, paying bills, caring for and possibly selling real estate or other possessions and managing investments.

Benefits

• If you do not set up a power of attorney, your caregivers will need to go to court to have a conservator appointed to manage your affairs. This is time consuming and costs money. In addition, you miss out on the opportunity to provide instructions and express your wishes for your financial care. Creating a durable power of attorney while you are well and competent ensures that your family and other loved ones may provide for your care seamlessly and with minimal complication.