Millions of people have powers of attorney. However, are you opening yourself up to problems in this common estate planning document? Attorney Michael Solomon explains this document and how you can make it work for you.
WHAT’S A POWER OF ATTORNEY?
A power of attorney is a simple legal document that authorizes someone you name, typically a trusted family member, to handle your legal or financial affairs. With this document your agent, the person you give it to, can step in to help when you become incapacitated.
CAN YOU NAME THE TWO MOST IMPORTANT LEGAL DOCUMENTS YOU ABSOLUTELY MUST HAVE?
I’ll give you a hint: a will and a trust are the wrong answers. The two most important legal documents are a financial durable power of attorney and a health care durable power of attorney. Wills and trusts are certainly important. Those are documents to plan for your estate at your death. The durable powers of attorney for finances and health care are designated to protect you during your lifetime.
The first document, the financial durable power of attorney, authorizes someone you trust, usually a spouse or child, to handle your finances. The agent you name can pay your bills, sign checks, sell stocks and generally handle your finances. If you become incapacitated or unable to handle your financial affairs, your agent under the financial durable power of attorney can easily step in to handle things.
The other document is the health care durable power of attorney. With this document, you can authorize someone to make healthcare decisions for you if you can’t make your own.
WHAT ARE THE DANGERS?
When you give someone a power of attorney, you’re giving them the power to go to the bank and take your money, or to sell the house. That’s a lot of power, and it can also lead to problems.
IF A POWER OF ATTORNEY IS IMPORTANT, BUT IT’S SO DANGEROUS, WHAT SHOULD WE DO?
Most people should have a power of attorney, however, you need to take precautions.
First, and most important, only give it to someone you trust. Usually, that’s a spouse or child. Even if the person lives out of town, and using that person will be less convenient, trust is the most important factor.
You can also build in precautions. For example, you can give it to two of your children and require both to approve decisions. One can’t steal you blind unless the other participates. Or, you could make one child the agent but give it to another child to hold. Again, they’d have to work together to steal your money.
You can make a springing power of attorney that can’t be used unless the agent gets a doctor’s statement that you are incompetent.
SO WHY WOULD ANYONE MAKE A POWER OF ATTORNEY?
It’s a very important document. Let’s say you don’t have one and your spouse becomes incapacitated or incompetent. You won’t be able to take money from his IRAs, even to pay his bills. You won’t be able to sell or refinance the house. You won’t be able to sell stocks. The only way around these problems is either to go to court, which is often costly and time consuming, or to get a power of attorney.
