A power of attorney (POA) for financial affairs is a written document in which one person grants the legal right to conduct his financial affairs to one or more people or an organization. A person granting a financial POA may revoke it in writing at any time as long as he is mentally competent to do so. The person granting the POA is known as the principal and the person granted the POA is known as the agent or “attorney-in-fact.”

Creating a Financial Power of Attorney

Many people complete corresponding financial powers of attorney with their spouses so that one make financial decisions for the other if he or she is unavailable or unable to do so. The POA should be in writing, and in many states, witnessed and notarized.

 

Reasons for Creating a Financial Power of Attorney

There are two main reasons a person creates a financial POA. Many times a person creates a financial POA in anticipation of the need to complete a financial transaction at which he cannot be present, such as a real estate closing. The other reason a person creates a financial POA is as a preventative measure. If a person becomes mentally incompetent and unable to conduct his own financial affairs, an agent is authorized to conduct the principal’s financial affairs on his behalf.

An Agent’s Duties

An agent may perform such duties as managing a person’s daily financial affairs, conducting banking transactions, buying, selling and managing real estate, purchasing life insurance policies, settling claims, entering into contractual obligations, filing taxes, buying and stocks and exercising stock options, and hiring professionals such as an attorney or accountant.

A financial agent has a duty to maintain financial records and make decisions in compliance with the principal’s wishes. An agent may not commingle his funds with the principal’s or violate his fiduciary duty to the principal.

Duties an Agent Cannot Perform

A financial agent may not execute, modify, or revoke a will or living will, even if the principal wishes it. Since a financial POA ends upon the principal’s death, an agent may not pay off the principal’s debts remaining after death, make funeral or burial arrangements, or transfer property to heirs. If a principal wishes for the agent to handle these matters, he will have to draft a will naming the agent as his executor.

“Durable” and “Springing” Powers of Attorney

Durable Power of Attorney

A POA expires once a person becomes incapacitated. However, if a person granting a POA wishes for the POA to continue despite incapacity, he must complete a durable POA. A durable POA is placed in writing and specifically indicates that it should continue through incapacity. If a principal fails to create a durable POA, the principal’s family will have to petition the court to appoint a guardian or conservator to manage the principal’s financial affairs.

Springing Durable of Attorney

A springing durable POA is one that goes into effect once a doctor certifies that a person is mentally incapacitated. This allows a person to remain in control of his financial affairs until that time he is no longer capable of doing so. If the written POA does not specify that it is “durable,” then the POA will never be triggered.

Conclusion

A financial power of attorney authorizes another person or organization to conduct the financial affairs of the principal. A POA may cover a variety of financial matters from buying and selling real estate to filing and paying taxes. The scope and duration of the POA is determined by its written terms.