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Financial
powers of attorney are important legal documents that many people use to help
handle their financial affairs when they are unable to do so. Because such
documents often give significant and far-reaching powers to another, financial
powers of attorney should be made only after thoughtful and careful
consideration. The assistance of an attorney is recommended.
Q.:
What is a financial power of attorney?
A.: In general, a power of attorney is a document that is created to allow
one person, called the "principal," to authorize another person,
called the "attorney-in-fact" or the "agent," to act or
make decisions for the principal. A financial power of attorney (in contrast
with a health care power of attorney) allows the principal to give authority
to an attorney-in-fact or agent to deal with financial matters. In essence,
the principal gives authority and power to the agent, and the agent acts for
the principal and must follow the principal's instructions.
Q.:
What are the main components of a financial power of attorney?
A.: In general, a financial
power of attorney will set forth, at a minimum, the following matters:
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It will name the agent. |
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It will name successor agents, if
any. |
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It will lay out the authority and
powers given to the agent and any limitations on such authority or
powers. |
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It will state when the authority and
powers begin and end. |
Q.:
What authority or powers will the agent have?
A.: The agent will have only the authority and powers that the
principal gives. This means that the principal can give the agent authority
and powers to deal with only certain properties or for specific transactions
(for example, authority over a particular bank account or authority to buy or
sell a particular property). The principal may decide, instead, to give
the agent broad and general authority and powers. For example, the principal
may decide that the agent should be able to do anything that the principal can
do. Oftentimes, when the agent is authorized to do anything that the principal
can do, the power of attorney will list examples of the agent's authority,
such as the authority to buy, sell, and invest the principal's property.
Q.:
Can the principal change a financial power of attorney?
A.: Yes. The principal can always change or revoke (cancel) a
financial power of attorney.
Q.:
Can an agent act when the principal is incompetent or disabled?
A.: Yes. For centuries, an agent could not act if and when the
principal became incompetent. In modern times, this restriction made it
difficult, if not impossible, for third parties to follow any instructions or
directions given by the agent on the principal's behalf. The law has since
been changed, and now provides that an agent can act when the principal is
incompetent as long as the principal has specifically stated in the power of
attorney document that the agent will have authority even if the principal
becomes incompetent or disabled.
Q.:
Can an agent make gifts of the principal's property?
A.: An agent cannot make gifts of the principal's money or property
unless the principal has specifically given this significant authority to the
agent. Even if very general or broad authority is given to an agent (for
example, authorizing the agent to do anything that the principal can do), this
still does not give the agent the authority to make gifts of the principal's
money or property. A person may, however, give an agent the specific authority
to make gifts or limited gifts. This may include the authority to change the
beneficiaries under life insurance policies or retirement benefit plans, so
that the agent can handle some estate planning for the principal.
Q.:
Are there any powers that cannot be given to an agent?
A.: Yes. There are some matters that one cannot authorize another to
do because such matters are considered too personal in nature. For example, a
principal cannot authorize an agent to vote in his or her place.
Q.:
When does the agent's authority begin?
A.: The agent's authority will begin when the power of attorney
states that it will begin. Many powers of attorney documents state that the
agent's authority begins as soon as the power of attorney document is signed.
Some powers of attorney documents state that the agent's authority will
"spring" into effect at a future date or upon a particular event.
For example, a power of attorney document can provide that the agent's
authority will begin if and when the principal is no longer competent as
determined by two or more physicians who have examined the principal. If an
agent's authority is to "spring" into effect in the future upon a
particular event, such as upon the principal becoming incompetent, it is
important to consider how easy or difficult it may be for the agent and others
to determine whether such event has occurred.
Q.:
When do the powers of the agent end?
A.: The agent's authority will end when the power of attorney states
that it will end or when the principal revokes (cancels) the power of
attorney. Many powers of attorney documents will not specifically state when
the agent's authority ends. If no specific ending to the agent's authority is
spelled out in the document, then the agent's authority will end when the
principal dies or revokes the power of attorney. An agent can never act after
the principal has died.
Q.:
What are some common uses of a financial power of attorney?
A.: Oftentimes, financial powers of attorney are established by
persons who understand that, as they get older, they may need help paying
their bills and handling their banking and financial matters. Powers of
attorney allow such persons to give to a spouse or child or another person the
broad, general authority to step in and handle such matters if and when they
cannot. Such powers of attorney are designed and intended to last for as long
as the principal is living. Sometimes, people need financial powers of
attorney for more limited purposes and for a more limited time. For example, a
person who plans to take an extended trip outside the country or someone who
is recuperating from a long illness can give a spouse or child or another
person a power of attorney to handle his or her financial affairs during this
limited time. Financial powers of attorney documents can be fashioned and
formed to fit the particular needs of the principal.
The
information contained in this pamphlet is general and should not be applied to
specific legal problems without first consulting your own attorney.
(Updated
7/15/2004)
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