Many of our estate planning clients have heard about a Financial Power of Attorney but are not clear as to why they should have one or how they might benefit from having this legal document. At the outset, it is important to consider, “Who takes care of my financial interests if I become incapacitated and unable to handle my own financial affairs?”
The answer to this question is that without a Financial Power of Attorney (POA), a court will typically appoint someone to act as your agent through a guardianship or conservatorship proceeding. This requires that a friend or family member file a petition with the local court seeking guardianship or conservatorship. This friend or family member will be required to gather and submit evidence which shows you have become incapacitated so the court may decide who should be appointed to manage your financial affairs. Not surprisingly, this process imposes significant burdens on your loved ones, including the costs of hiring a lawyer or law firm, physicians, and possibly others to provide evidence as to your incapacity. It often results not only in emotional distress at a time when your loved ones are already dealing with your illness or injury, but it also causes delays in having your affairs properly addressed. At the same time, you have no input on who will be appointed to serve as your agent.
Benefits of a Financial Power of Attorney
In contrast, if you have executed a comprehensive and durable Financial Power of Attorney naming your agent and any successor agents, most of these disadvantages can be avoided. Here are some of the common benefits, as identified by our estate planning attorneys, of having this document in place:
- The Ability to Choose Who Will Act as Your Agent (rather than a court)
If someone has signed a comprehensive and durable Financial Power of Attorney and later becomes incapacitated and unable to make decisions, the agent named can step into the shoes of the incapacitated person and make important financial decisions as provided in the POA.
- Avoids the Costs and Delays of a Guardianship or Conservatorship
For the minimal upfront cost of having a Financial Power of Attorney prepared by an estate planning lawyer, thousands of dollars can be saved by avoiding legal action. In addition, your named agent can begin handling your financial affairs from the moment you become incapacitated, as that term is defined in your Financial Power of Attorney.
- Provides You an Opportunity to Discuss Your Wishes With Loved Ones
Preparing a Financial Power of Attorney forces you to consider who you trust to handle your financial affairs so you can take the time to speak to those persons about your wishes and expectations. If your chosen agent does not wish to take on the burden of handling your financial affairs, you will have time to consider others to act in this capacity.
- Prevents Questions About Your Intent
Many of us have read or heard about protracted litigation over an incapacitated person’s intent. A well-drafted durable Financial Power of Attorney can eliminate the need for loved ones to disagree over your wishes in the event you become incapacitated.
- Protects Your Agent From Claims of Financial Abuse
If your named agent, or any successor agents, are also beneficiaries of your estate, the Financial Power of Attorney can allow the agent to make gifts to him or her-self or others in order to carry out asset protection planning objectives. Without the power of attorney authorizing this, the agent, often a family member, could be at risk for allegations of financial abuse by others.
When Does My Financial Power of Attorney End?
A durable Financial Power of Attorney automatically ends at your death. It also ends if:
- You revoke it. As long as you are mentally competent, you can revoke your document at any time.
- You get a divorce. In California, your durable power of attorney is automatically terminated if your spouse is your agent and you get a divorce. As a practical matter, it is always wise to make a new power of attorney as soon as you file for divorce.
- A court invalidates your document. It’s rare, but a court may declare your document invalid if it concludes that you were not mentally competent when you signed it, or that you were the victim of fraud or undue influence.
- No agent is available. To avoid this problem you can name an alternate agent in your document.
- As otherwise provided in your POA. Your POA may include other instances in which the document becomes ineffective.
Taking the time to sign a comprehensive and durable Financial Power of Attorney reduces the burden on loved ones who would otherwise be forced to seek a court’s authority for performing basic tasks, like writing a check or arranging for home health services—all at great expense and delay. Knowing this has been taken care of in advance by an experienced estate planning attorney is of great comfort to families. For more information browse our website or to speak with an experienced estate planning lawyer, contact us today.
To comply with the U.S. Treasury regulations, we must inform you that (i) any U.S. federal tax advice contained in this newsletter was not intended or written to be used, and cannot be used, by any person for the purpose of avoiding U.S. federal tax penalties that may be imposed on such person and (ii) each taxpayer should seek advice from their tax advisor based on the taxpayer’s particular circumstances.
The following is the text of the Uniform Statutory From Power of Attorney authorized by the California Probate Code Section 4401: