If you become incapacitated, you're unable to make decisions for yourself. This is why it's so important to create a financial power of attorney. With this, you grant another person, known as a financial agent, the power to manage your finances and make key decisions on your behalf.
When creating a financial power of attorney, it's important to address these questions:
- Whom should you name as your agent?
- What type of power will you give your agent?
When choosing an agent, focus on individuals who are honest, trustworthy and have a solid understanding of many areas of finance. This person could end up with a lot of power in the future, so making the right choice will put your mind at ease.
You can set limits regarding your agent's power, which allows you to maintain full control over what this person can and can't do. Some people are all right with the idea of giving their agent full control over their finances. Others, however, want to limit this power for one reason or the next.
Here are some of the many tasks you may want to ask your agent to perform:
- Pay your taxes and bill
- Pay medical bills
- Manage your real estate
- Access and manage your financial accounts
- Invest money on your behalf
- Collect government benefits
- Collect retirement benefits
- Purchase insurance on your behalf
- Operate or help operate your small business
- Seek third party assistance, such as from a CPA, when necessary
It's important to remember that your agent can't do whatever they please, but must instead act in your best interests.
When should it begin?
There are two basic types of financial power of attorney:
- Durable financial power of attorney: This means it goes into effect once it's signed.
- Springing power of attorney: This means it doesn't go into effect unless you are incapacitated, as certified by a medical professional.
A financial power of attorney is a big part of any estate plan. With this in place, you'll have peace of mind in knowing that your finances will remain in good hands while you're unable to make your own decisions.
Once the time comes to create a financial power of attorney, settle on an agent and then decide what type of power to grant them. This will put you on the right path.