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Durable Power of Attorney for Finances

What is a Durable Power of Attorney for Finances and Why Do I need One?

A durable power of attorney is one of the most powerful and important estate planning tools for clients looking to protect their welfare in case of “incapacity.”  If you become ill (alzheimers, dimentia, etc), injured, or otherwise cannot take care of your own finances, you (the “principal”) can name a trusted individual (“agent”) to step into your financial shoes and help pay bills, make bank deposits, monitor investments, collect insurance and governmental benefits, and handle any other financial matters you may desire.

Your durable power of attorney for finances can be expansive or limited in nature depending on your preferences.  A general power of attorney allows the agent to perform almost any act the principal could have performed.  A limited power of attorney can be tailored to allow the agent only one or more specific powers, such as the power to sell particular property to a particular purchaser at a particular time.

Smart preventative estate planning requires preparing the durable power of attorney for finances before incapacity arises because at that point, the “incapacitated” principal will not be able to create a power of attorney. A durable power of attorney is essential because if a person becomes incapacitated or incompetent without this document in place, family and friends will not be allowed to pay bills or make many important financial decisions on behalf of their loved one.  Nor, can they do crucial medicaid planning.  It is too late and court intervention would be necessary, costly, and stressful.

Creating a valid durable power of attorney while you still have capacity allows the agent to act immediately on the your behalf to manage your affairs.  If you don’t want the durable power of attorney to take effect immediately, you can create a “springing” power of attorney that comes into force only after a doctor certifies that you are incapacitated.

Termination of Durable Power of Attorney for Finances

A durable power of attorney for finances ends on death.  It can also end if:

  1. You revoke or revise it, which you may do as long as you’re mentally competent;
  2. You get a divorce and your spouse is listed as agent.  It’s wise to create a new durable power of attorney for finances when you get divorced;
  3. Court invalidates the document because there is evidence that you were not mentally competent; and/or
  4. No agent is available. It’s wise to have at least one alternate agent named.  You can also name co-agents if you desire.

Loss of Control

Some clients are wary about entering into a durable power of attorney for finances because they feel like they will lose control over their finances, or worse, their agent could take advantage of the situation.  Remember – the durable power of attorney for finances only comes into play when you’re incapacitated. It’s imperative that the agent is chosen wisely.  Additionally, if there are these type of concerns, the principal can always limit the power of the agent to perform only tasks they feel comfortable with.