Many people avoid signing a power of attorney document at all costs because they mistakenly think it will take away all of their control over their financial decisions. However, signing a power of attorney may give you more control than you think.
A financial power of attorney is a document that appoints someone, called an agent or attorney-in-fact, to make financial and legal decisions on your behalf. Some of these decisions may include paying your bills, paying your taxes, managing your real estate or hiring someone to represent you.
You must be of sound mind when you sign a power of attorney, and you should not sign anything that you do not agree with. With that in mind, powers of attorney are not one-size-fits-all, and you are able to decide who your agent will be, when your agent is able to have the power to make decisions for you and when that power ends.
Different types of financial powers of attorney
A general power of attorney begins when you sign it and ends when you become mentally incapacitated. This may leave no one with the power to look after your finances at a time when you are especially vulnerable, which is why many people choose other types of powers of attorney instead.
A springing power of attorney might be an appropriate precaution if you are currently comfortable managing your finances on your own, but want to be prepared in case something happens to you, rendering you unable to continue performing those responsibilities. A springing power of attorney only allows your agent the power to make decisions after a specific event happens, like you becoming incapacitated. However, it has to be very carefully drafted, so there is no confusion over what can trigger this shift in power.
A limited power of attorney allows you to give your agent the power to perform only some specific acts on your behalf. For example, your agent could be allowed to pay your bills, but not be allowed to manage your real estate. You may also limit the time that your agent can have these powers.
A durable power of attorney begins when it is signed and will be in effect until the end of your lifetime, unless you cancel it. Many people find this to be the best choice because an agent will be able to act on your behalf when you are incapacitated, and there will be no confusion about when that power starts and ends.
By signing a power of attorney, you have control over who your agent is, what power he or she has, and when your agent has that power. If you reach a point in your life when you are no longer able to make your own decisions, it is already too late to set up a power of attorney.
If you can no longer make your own decisions and have not already signed a power of attorney, your loved ones may be unable to make decisions on your behalf without being awarded guardianship. Although guardianship is not anything to fear, you may not have the same amount of control over who handles your affairs, and which affairs they have the power to manage.
The future is uncertain, but signing a financial power of attorney can be empowering. With a power of attorney, you exercise your ability to affect the decisions that are made when you are unable to make them yourself.