8 Things to Know About Power of Attorney for Finances

Quick summary

A power of attorney for finances can be a valuable tool for your parent. He can use it to help him manage specific transactions, to assist him for just a short time, or to regularly manage his everyday affairs. And what's called a durable power of attorney for finances sets up a simple, relatively inexpensive way to handle your parent's finances if he ever becomes incapacitated. If you and your parent are considering a power of attorney for finances, here are some things to keep in mind.

Would a power of attorney help your parent now with his everyday finances?

Even if your parent is still competent to make major financial decisions, he may be finding it difficult to manage all his everyday money matters. Maybe his eyesight isn't sharp enough to confidently read financial documents or his hearing isn't good enough to negotiate telephone transactions. Maybe it's not easy for him to get around, make trips to the bank, or oversee property.

In these situations, he might get some relief by executing a general power of attorney for finances. This document would give someone -- you or another family member -- the authority to act on your parent's behalf in any financial transaction but would not take away his authority to act on his own whenever he chooses.

Does your parent need a limited power of attorney to help with specific transactions?

Your parent might still be able to handle everyday money matters without help. Even so, he might not be comfortable handling more complicated transactions that come up from time to time. These might include buying a car, making an insurance claim, buying or selling a home, or arranging long-term care.

For any particular situation in which he feels unsure of himself, he could execute what's called a limited power of attorney for finances. This would authorize someone -- called his agent or attorney-in-fact -- to act on his behalf only for the specific transaction listed in the document. The power of attorney would end once the transaction was complete. Sometimes an ending date is placed on the appointment of the agent as an extra limitation.

Would a temporary power of attorney for finances help protect your parent when he's traveling?

Your parent may regularly spend time away from home, perhaps even out of the country. Or he may be planning a trip at a time when he knows a specific financial matter is likely to need attention. If so, he could execute a power of attorney for finances -- either a general power of attorney or one limited to specific transactions -- to operate only during the time he's away. The power of attorney would expire on the date he is to return home, as specified in the document. As with any other type of power of attorney, he could revoke it -- meaning it would no longer be effective -- earlier, as long as he is still mentally competent.

Should your parent consider a durable power of attorney for finances in case he becomes incapacitated?

One of the most difficult and complicated situations any family can face is the sudden and permanent incapacitation of a parent. The problems are worse if the parent has not prepared a document that authorizes someone to act on his behalf regarding financial matters that may continue needing attention for as long as he lives.  Although it may make your parent nervous to give anyone else power over his finances, without such a document, your family may be faced with the complicated and expensive process of having a conservator or guardian court-appointed for your parent.

Fortunately, there's a simple document that makes this court process unnecessary. It's called a durable power of attorney for finances -- the word durable means that it remains in effect after your parent is incapacitated. Although it's a good idea to have a lawyer review the document, preparing it is a relatively simple and inexpensive matter that can save untold distress. Everyone reaching their elder years should consider having a durable power of attorney for finances. In fact, it's never too early to have one in place -- no one expects to have a stroke or accident, but when it happens the patient's family may need financial authority.

Who should serve as my parent's agent under a durable power of attorney for finances?

It's important to pick the right person to act as the agent (or attorney-in-fact) who's given authority under your parent's power of attorney for finances. Trustworthiness is most important, of course. But beyond that, different people might fit different needs. For complicated one-time transactions, the agent should be familiar with the particular financial matter. For temporary handling of everyday money matters while your parent is away, it should be someone with easy access to the necessary paperwork. For ongoing, general power-of-attorney duties while your parent remains in charge, it should be someone who gets along well with your parent and can easily accept what your parent does and doesn't want done for him.

The most important choice of an agent is for a durable power of attorney. This is someone who will retain authority indefinitely if and when your parent is permanently incapacitated. The durable power-of-attorney agent should not only be capable of handling all your parent's financial affairs but also be willing and able to give sufficient time and energy to these responsibilities over the long term.

Does my parent need a durable power of attorney for finances if all his assets are held jointly with his spouse?

If your parents, or your parent and his present spouse, have all their income and assets under both their names, it may not seem as if there's any need for a power of attorney for finances. If something happens to your father, the spouse already has authority over the assets. But a durable power of attorney for finances is still a good idea. That's because one spouse may become incapacitated at the same time, or soon after, the other. Or, a separate asset or income might later come to your parent without his spouse's name on it.

Does my parent need a durable power of attorney for finances if he's set up a living trust?

The trustee of a revocable living trust may have much the same authority to deal with your parent's finances as the agent does in a durable power of attorney. Even if your parent has a living trust, however, it's still a good idea for him to execute a durable power of attorney for finances. (He could name the same person to both jobs -- trustee of the living trust and agent in the power of attorney.)

The reason it's wise to have a separate document is that not all your parent's income and assets may wind up in the living trust; if some income or asset comes to your parent after he is incapacitated or wasn't placed in the trust through some oversight, the trustee would have no authority over it.

Who should have copies of my parent's power of attorney for finances?

The original power-of-attorney document should be kept in a safe place, either at your parent's home, in a safe deposit box, or at your parent's lawyer's office. The person named as agent or attorney-in-fact in the document should be given a certified copy and told where the original is. Alternate or successor agents should also get certified copies and be told where the original is, as should close relatives. Your parent's tax preparer, accountant, lawyer, and broker should have copies in their files. And each financial institution where your father regularly does business or maintains an account should also have a copy for its files.