Understanding Your Financial Power of Attorney
A Financial Power of Attorney allows a person, called the Principal, to give someone they trust, called an Agent or Attorney-in-Fact, legal authority to handle financial and property matters on their behalf.
The authority given to the Agent can be broad or limited, depending on the choices made when the document is created. A Financial Power of Attorney does not give the Agent authority to make medical decisions.
Who Is the Principal?
The Principal is the person creating the Financial Power of Attorney and giving another person authority to act on their behalf.
Who Is the Agent?
The Agent, sometimes called an Attorney-in-Fact, is the person selected by the Principal to handle the financial matters authorized by the Power of Attorney.
Because an Agent may be given significant control over financial and property matters, it is important to select someone who is trustworthy, responsible and willing to act in the Principal's best interests.
What Is a Successor Agent?
A Successor Agent is a person selected to serve if the original Agent becomes unable or unwilling to act. Naming a Successor Agent can help ensure that someone is available to handle the Principal's affairs if the first choice cannot serve.
When Does a Financial Power of Attorney Become Effective?
A Financial Power of Attorney may become effective immediately or may become effective only after a future event, depending on the choices made when the document is created.
Effective Immediately
If the Financial Power of Attorney is effective immediately, the Agent's authority begins once the document has been properly completed and signed.
Effective Upon Incapacity
A Financial Power of Attorney that becomes effective only upon the Principal's incapacity is sometimes called a springing Power of Attorney because the Agent's authority "springs" into effect when the required condition occurs.
The document will explain when and how the Agent's authority begins.
What Does "Durable" Mean?
A durable Financial Power of Attorney remains effective if the Principal later becomes incapacitated. This allows the Agent to continue handling authorized financial matters when the Principal is no longer able to manage those matters personally.
What Powers Can Be Given to an Agent?
The specific authority given to an Agent depends on the powers selected in the Financial Power of Attorney. Depending on the document, an Agent may be authorized to handle matters involving:
- Real estate
- Personal property
- Banking and other financial transactions
- Stocks, bonds and investments
- Business interests
- Insurance
- Retirement plans
- Taxes
- Government benefits
- Claims and litigation
- Estate, trust and beneficiary matters
- Gifts
- Personal and family maintenance
The Agent may exercise only the authority granted by the Financial Power of Attorney and applicable law.
Are There Limits on the Agent's Authority?
Yes. An Agent must act within the authority granted by the Financial Power of Attorney and has important legal responsibilities when acting for the Principal.
An Agent generally must act in the Principal's best interests, keep appropriate records, avoid improper conflicts of interest and keep the Principal's property separate from the Agent's own property.
For more information about serving as an Agent, see Agent's Guide to Making Financial Decisions for Others.
How Do I Choose an Agent?
The most important consideration when choosing an Agent is trust. The person selected should be responsible, willing to serve and capable of handling financial matters carefully.
Consider whether the person understands the responsibility, will follow the Principal's wishes, will act in the Principal's best interests and will seek professional assistance when necessary.
Does the Agent Have to Sign the Financial Power of Attorney?
Requirements vary by state. In some states, the Agent does not need to sign the Financial Power of Attorney. Other states may require the Agent to sign an acceptance, acknowledgment or similar document.
Follow the state-specific signing instructions included with the TotalLegal documents.
Does a Financial Power of Attorney Need to Be Notarized?
Financial Powers of Attorney are commonly notarized, and some states also require witnesses. Exact signing requirements vary by state.
Follow the state-specific signing instructions included with the TotalLegal documents to determine the requirements that apply.
For more information, see Guide to Notarizing Estate Planning Documents.
When Does a Financial Power of Attorney End?
A durable Financial Power of Attorney generally ends when the Principal dies, revokes the document, or when another event specified in the document or required by law causes the Agent's authority to end.
An Agent's authority may also end if the Agent can no longer serve and no Successor Agent is available.
Does a Financial Power of Attorney Continue After Death?
No. A Financial Power of Attorney ends when the Principal dies. After death, authority over the estate generally passes to the Personal Representative or Executor appointed through the probate process.
Can a Financial Power of Attorney Be Revoked?
Yes. A Principal can generally revoke a Financial Power of Attorney while legally capable of doing so.
After revoking a Financial Power of Attorney, copies of the revocation should be provided to the Agent and to banks, financial institutions or other third parties that may have relied on the prior Power of Attorney.
Does a Financial Power of Attorney Cover Medical Decisions?
No. A Financial Power of Attorney deals with financial and property matters. A Durable Power of Attorney for Health Care or Medical Power of Attorney is used to authorize another person to make health care decisions.
For more information, see Financial and Medical Power of Attorney Differences.