Power of attorney is a document that allows you to name someone else to manage your financial matters. Although many people have heard of power of attorney before, there are several common misconceptions about how it works.
When can you sign a power of attorney?
One common misunderstanding people have about power of attorney involves thinking that someone can sign a power of attorney once he or she has become incompetent. This is not the case. Like most legal documents, you must be of sound mind when signing it.
If something happens to you rendering you incompetent, a family member may be required to seek conservatorship to help you manage your finances. To do this, he or she must prove to a court that you are unable to manage your own finances. The process of awarding conservatorship can be expensive and time-consuming, and is often more restrictive for you than a power of attorney would have been.
When does your agent take control of your finances?
Another common misconception involves when your agent, sometimes called an attorney-in-fact, can take control of your finances. Many people assume that they would be signing away their rights to make any financial decisions ever again. However, you are actually able to choose when your agent takes control of your finances and when your agent loses control of your finances.
You can choose to have your power of attorney go into effect as soon as it is signed or only after you lose the ability to make your own financial decisions. You can also choose to have your power of attorney expire on a specific date, or you can set it to only end if it is canceled or if you pass away.
Also, signing a power of attorney does not take away your ability to make your own financial decisions. If you choose, you can continue to make the same financial decisions as you did before you had a power of attorney.
Will my agent have limitations?
Many people believe that power of attorney will give an agent the ability to do whatever he or she wants with the estate. However, this is another misconception.
Although it is important to choose someone you trust to be your agent, your agent has a responsibility to act in your best interests and is never allowed to change your will or spend your money on himself or herself. However, you can also put additional limitations on the kinds of financial decisions you allow your agent to make.
Some of the tasks agents are typically allowed to handle, include:
- Completing bank transactions
- Paying bills
- Buying or selling property
- Filing tax returns
- Signing contracts
- Hiring people to care for you
Having a power of attorney can help provide you and your loved ones peace of mind with the knowledge that your financial matters will be handled, even if you become unable to manage them yourself. This type of planning can be personalized to your unique situation and can help prevent more restricting and costly alternatives.