A financial power of attorney is one of the most practical legal tools available to anyone who wants to protect their assets and ensure their financial affairs are handled properly. Whether you are planning for a potential incapacity, preparing for an extended trip abroad, or simply want a trusted person to help manage your finances, a financial POA gives you control over who handles your money matters and how.
What Is a Financial Power of Attorney?
A financial power of attorney is a legal document that authorizes a person you choose (your agent or attorney-in-fact) to manage your financial affairs on your behalf. The document spells out exactly what your agent can and cannot do, giving you full control over the scope of their authority.
Unlike a medical power of attorney, which deals with healthcare decisions, a financial POA focuses exclusively on monetary and property-related matters. It can be as broad or as narrow as you want, covering everything from paying your electric bill to managing a multimillion-dollar investment portfolio.
The person creating the POA is called the principal. To create a valid financial POA, the principal must be mentally competent at the time of signing. Once signed and properly executed according to state law, the document grants the agent legal authority to act within the powers specified.
What Powers Can a Financial POA Grant?
The scope of a financial power of attorney depends entirely on what you include in the document. Here are the most common powers that principals grant to their agents.
Banking and financial accounts. Your agent can deposit and withdraw funds, write checks, transfer money between accounts, open or close accounts, and manage certificates of deposit or money market accounts.
Bill payment and everyday expenses. The agent can pay your mortgage, rent, utilities, insurance premiums, credit card bills, and other recurring obligations. This is particularly useful if you are incapacitated or traveling and cannot handle these tasks yourself.
Investment management. You can authorize your agent to buy and sell stocks, bonds, mutual funds, and other securities. They can also manage retirement accounts, although some financial institutions have their own rules about POA acceptance for retirement accounts.
Real estate transactions. With proper authority, your agent can buy, sell, lease, or manage real property on your behalf. This includes signing purchase agreements, listing property for sale, negotiating terms, and handling closing documents.
Tax matters. Your agent can prepare and file your tax returns, communicate with the IRS or state tax agencies, and handle tax-related disputes or audits.
Business operations. If you own a business, your agent can manage day-to-day operations, sign contracts, hire or terminate employees, and make business decisions within the scope of their authority.
Insurance matters. The agent can file insurance claims, change beneficiaries (if authorized), pay premiums, and manage your insurance policies.
Government benefits. Your agent can apply for or manage government benefits on your behalf, including Social Security, Medicare, Medicaid, and veterans' benefits.
Durable vs. Non-Durable Financial POA
One of the most important decisions when creating a financial POA is whether to make it durable or non-durable.
A durable financial POA remains in effect even if you become mentally incapacitated. This is the most common choice for people engaged in long-term planning, because incapacity is often the primary reason they want someone else to manage their finances.
A non-durable financial POA automatically terminates if you lose mental capacity. This type is typically used for short-term, specific transactions where incapacity planning is not a concern, such as authorizing someone to handle a real estate closing while you are out of the country.
For most people, a durable financial POA is the better option. Without one, your family would need to petition a court for guardianship or conservatorship to manage your finances if you became incapacitated, a process that can be expensive, time-consuming, and stressful.
Your Agent's Responsibilities and Limitations
Being named as an agent under a financial POA carries significant legal responsibilities. Your agent has a fiduciary duty, meaning they are legally required to act in your best interest, not their own.
Specifically, your agent must keep your finances separate from their own, maintain accurate records of all transactions, avoid self-dealing and conflicts of interest, follow your instructions as outlined in the POA document, and act prudently and responsibly with your assets.
If an agent fails to meet these obligations, they can be held liable for financial losses and may face civil or criminal penalties. This is why choosing the right agent is so critically important.
There are also things a financial POA generally cannot authorize. An agent typically cannot change your will, vote on your behalf, make decisions after your death, or perform duties that are inherently personal (such as getting married or adopting a child on your behalf).
Common Challenges with Financial POAs
While a financial POA is a powerful tool, there are practical challenges worth knowing about.
Third-party acceptance. Some banks and financial institutions may be reluctant to accept a power of attorney, especially if the document is older or uses language they are unfamiliar with. Many institutions have their own POA forms they prefer. To minimize issues, consider having your agent present the POA to your financial institutions in advance.
State law variations. POA laws vary from state to state. Some states have adopted the Uniform Power of Attorney Act, which provides a standardized framework, but others have their own requirements regarding witnesses, notarization, and specific language that must be included.
Potential for abuse. Unfortunately, financial elder abuse through misuse of a POA is a real concern. Safeguards such as requiring the agent to provide regular accountings, naming co-agents, or having a third party monitor the agent's actions can help mitigate this risk.
How to Create a Financial Power of Attorney
Creating a financial POA involves several key steps. Start by determining what powers you want to grant and whether you want the POA to be durable or non-durable. Choose a trusted agent and consider naming one or more successor agents in case your primary agent is unable to serve.
Draft the document with specific, clear language about the powers granted. Make sure the document complies with your state's requirements for execution, which typically include the principal's signature, witness signatures, and notarization.
Once the document is signed, provide copies to your agent, your financial institutions, and anyone else who may need to rely on it. Store the original in a safe but accessible location.
After generating your documents, follow the execution instructions included with your download to ensure proper signing, witnessing, and notarization per your state's requirements.
Protect Your Financial Future
A financial power of attorney is not just for the wealthy or the elderly. It is a practical document that everyone should have as part of their overall planning. By taking the time to create one now, you ensure that someone you trust can step in to protect your financial interests when you need it most.
Ready to create your financial power of attorney? mypoa.ai walks you through the entire process, helping you build a document that meets your state's requirements and covers the financial powers that matter to you.