Financial Power of Attorney (POA): Durable, Limited, How to Use

A financial power of attorney authorizes someone to handle your financial affairs if you can’t.
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A financial power of attorney (POA) is a legal document that authorizes someone to handle your financial affairs if you cannot due to incapacity or cognitive impairment. You might also create a POA if you are ill or out of the country

American Bar Association. Power of Attorney. Accessed Mar 20, 2024.
.

Having a POA can be an important step in estate planning. It ensures that someone is ready to responsibly manage your finances if you cannot. Without a financial power of attorney, a court may have to name someone as your conservator or guardian to manage your affairs

Family Caregiver Alliance. Conservatorship and Guardianship. Accessed Oct 26, 2023.
.

How does a financial power of attorney work?

A financial POA is a fiduciary (financial or legal) relationship between you (the principal) and the person you designate (the agent, also called the attorney-in-fact). The agent is legally bound to make decisions in your best interest.

Generally, the responsibilities of a financial POA agent may include managing the following:

  1. Distribution of assets to cover daily expenses.

  2. Real and personal property transactions.

  3. Stock, bond or other securities trades.

  4. Banking duties.

  5. Business operations.

  6. Insurance and annuity transactions.

  7. Estate, trust and other beneficiary needs.

  8. Legal claims and other litigation.

  9. Retirement benefits payments.

  10. Charitable contributions.

  11. Handling of government benefits, including Social Security, Medicare or unemployment compensation

    American Bar Association. Pick the Right Power of Attorney Instrument. Accessed Mar 19, 2024.
    .

Some states may have specific types of financial POA designations, such as for real estate transactions, vehicle registration, or taxes.

You can use a durable financial POA or a tax-specific POA to authorize someone to file your income tax return for you. You’ll need to fill out IRS Form 2848 to allow your agent to represent you in front of the IRS.

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How to set up a financial power of attorney

  1. Choose your agent carefully. This person should be someone you trust to make decisions in your best interest, especially if you’re incapacitated.

  2. Complete a power of attorney document. Some states have official forms, and some online will-making software offers POA forms as part of estate planning packages.

  3. Specify the powers and limitations of your agent, including what events would trigger a revocation of the powers.

  4. Consider hiring an estate planning attorney to draft a POA form for more complex situations.

  5. Give copies of your form to close family members and important financial institutions, such as your bank, so everyone is on the same page in case anything happens.

Types of financial power of attorney

Durable financial POA

A durable POA stays intact if you become incapacitated, such as if you fall into a coma or experience cognitive decline. However, it does not remain in place if you die.

Nondurable financial POA

A nondurable financial POA ends if you become incapacitated. If you’re not concerned about incapacity — you’re setting up a POA so someone can handle your finances while you’re out of the country, for example — you may prefer a nondurable POA.

Limited or special POA

A limited POA restricts your agent to specific activities, such as paying your taxes only for this year or carrying out tasks related to selling your home. A general POA, on the other hand, gives your agent broad power to execute financial tasks.

You can also set up a POA to be “springing,” meaning it takes effect after a specific event occurs. The springing event is typically the principal’s incapacity, which can sometimes be challenging to prove.

Power of attorney by state

See the requirements for creating a valid power of attorney in these states:

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