You should consider a Power of Attorney (POA) prior to a reduction in your cognitive abilities.
Doing so prior to losing your cognitive abilities can protect you and your loved ones from the hassle (can be costly both emotionally and financially) of having to hire an attorney to give someone that power.
How You Can Benefit
By having a power of attorney in place that designates someone else to make financial and life decisions for you—or on your behalf when you are unable to do so you put the power in your hand by being able to choose who “you” want to handle your affairs.
You can designate who you want to write checks to pay your bills, authorize transactions from your brokerage accounts, file your income taxes, approve the purchase or sale of property that you may own, give monetary gifts or change your living situation—along with other duties specifically outlined in the power of attorney.
The POA is intended to be used only if you no longer want to manage your own affairs or you can no longer do so!
Types of POA:
1) Durable—they remain active after you become incapacitated
2) Limited—allows someone to act for you in “specific” situations
3) General—allows someone to act on your behalf in a “broad” manner
4) Springing—allows someone to act on your behalf once you become incapacitated
5) Health Care—allowed in some states and grants someone to act on your behalf for medical decisions—other states allow you to designate an agent or health care proxy to act on your behalf
All POA’s are revocable at any time unless stated not to be—meaning you can eliminate the POA at any time as long as you are not mentally incapacitated!
All POA’s expire upon your death. Keep in mind that POA’s vary by state and you should obtain competent legal advice to determine what will work best for your situation!
What If I Fail To Get A POA?
If you fail to get a POA or a properly drafted POA, your family members would possibly have to hire an attorney to petition the court to appoint a “guardian” if you were to become incapacitated (lose your mental abilities).
That could be costly in terms of dollars and time. In addition, the “court” could end up appointing a stranger or conservator—instead of “you” appointing the person that you desire!
Although you give up control to someone else, a power of attorney—when properly drafted gives “you” the opportunity to choose.
Do you really want the person chosen to handle your affairs done by others?
How Do I Create A Valid POA?
A valid POA must be created while you are of sound mind (still in full control of your mental faculties).
The cost can range from as low as $50 with online legal companies to as high as several thousand dollars—if you were to choose an attorney.
If you have an attorney or law firm already secured, you may be able to get them to bundle it in with other services for a low fee.
How Do I Choose a Power Of Attorney?
Choosing the right person for a POA should be based on a number of factors.
The person that you designate the POA to be is
known as the agent or attorney-in-fact and they would have the legal
responsibility (fiduciary duty) to act in your best interests.
Therefore, the person that you choose must have the capacity to carry out the duties that are necessary, keep good records of all transactions and have the necessary time available to carry out the required duties.
select someone that you trust and someone who is savvy and responsible in their
approach to financial and other matters that you may face on a daily basis.
You may want to consider an estate planning attorney if you have substantial assets.
They can assist you in drafting documents that outline your wishes at
this time and possibly assist you in identifying an appropriate person to
handle POA duties—based on your situation.
By choosing a POA at this time (prior to your incapacity) you can also appoint a person to look over the person that you choose to handle POA duties—which serve as an added security measure.
who appears honest and trustworthy can change when having access to large
amounts of cash—and life is not going their way.
You can have
your financial statements sent directly to that second person or you can
designate that second person a POA agent as well.
Use caution when selecting your children or your spouse—as it can often lead to bitter disputes.
caution if you don’t know anyone that you can trust and you select others that
you don’t know!
Whether they are an attorney, financial planner, officer at your local bank—or any other professional their is no guarantee that they will be working for your best interest!
You must use caution and investigate those professionals in a relentless manner as financial scammers come in many forms.
Where Should I Keep The Power Of Attorney Document?
The POA document is normally kept at the attorney’s office if you had the POA created by an attorney.
You can request that the attorney demand at least one doctor’s (preferably more than one) determination of incompetence before handing over the POA—and have them pay a visit to you as an added check.
It may be
wise if you have considerable assets to set up a “revocable living trust” that
could shield your assets from others—while allowing them to pass to your
beneficiaries directly—thus avoiding probate.
You would be the trustee and you would have full control until you were deemed incompetent—or your untimely transition.
At that time a “successor trustee” that “you” would have named—would take over.
The person with the POA would be restricted
to signing your tax returns and transferring additional assets into the trust.
Setting up a “revocable living trust” would provide an additional layer of security—however you must have considerable assets—as a revocable living trust is costly to set up (several thousand to tens of thousands of dollars—depending on the size and complexity of your estate).
Final Thoughts on Power Of Attorney & Why You Need One
As you age you
want to give strong consideration to setting up a POA with someone that you
trust and can depend on.
Incapacitation and transitioning is a difficult topic to confront. However, it is a reality that we will all eventually face—either directly or indirectly.
Therefore it is your responsibility to do the needed
planning on the front end.