Many people think of estate planning as end-of-life planning. However, you can employ a financial power of attorney at any point in your life.
Here are some details about this versatile estate planning document.
What it does
A financial power of attorney gives another person the authority to make certain financial decisions on your behalf. You get to choose which of the following types of transactions your agent has the authority to manage:
- Bank accounts and safe deposit boxes
- Real estate, estate and other property
- Tax matters
- Business operations
- Retirement and investment matters
- Insurance policies and annuities
- Legal matters
- Military service, Social Security and employment benefits
While you may choose from this list, you may also write in your own specific wishes, including limitations and conditions.
When it goes into effect
You may want to designate an agent to take over your decisions at the moment you become incapacitated, such as in a car accident or another serious injury. In that case, the power of attorney would end when you regain the ability to retake control over your affairs. Choosing incapacitation as the starting point is common for people preparing for old age and anticipating the day when they are no longer able to think clearly enough to make these decisions.
A person whose spouse has always taken care of financial matters may want to designate an adult child to take care of things when the spouse dies. If you are going out of the country, you may want to set up a power of attorney so that your agent can take care of your business matters while you are away.
Who you should choose
Obviously, you want to designate someone you trust implicitly with financial matters. However, you do not necessarily need to choose a financially savvy person. This person will make decisions on your behalf, but you could require him or her to work with professionals such as real estate brokers, accountants and bankers rather than directly controlling your finances. You may even designate an attorney or a financial institution as your agent.