The Advantages of Creating a Financial Power of Attorney
A power of attorney is a legal instrument by which one person a gives another person certain authority over their affairs. A financial power of attorney empowers an agent to perform a range of financial activities such as buying, selling, and managing property, entering into contracts, managing stocks, conducting bank transactions and making business decisions.
A power of attorney can be general or limited in scope. A general power provides broad authority, including financial authority to the agent and remains effective until it is rescinded or until the grantor dies. A limited power of attorney is valid only for a specified purpose and duration.
For dealing with a potential medical emergency, a “springing” power of attorney may be used. It takes effect if and when the grantor is declared to be mentally incapacitated by a doctor or other medical authority. By contrast, a “durable” power of attorney becomes effective the moment it is signed by the grantor and stays in effect during the period of the grantor’s incapacity.
Each type of power of attorney has its advantages and drawbacks. With a springing power, any outstanding financial decisions are delayed until the grantor is declared to be incapacitated, which can take weeks if the determination is contested. There may also be disagreement over whether or when the incapacity comes to an end. On the other hand, a durable power requires an enormous amount of trust between the grantor and the agent, who is immediately empowered to make financial decisions for the grantor. This creates a potential for abuse, though a carefully drafted durable power can curb this possibility.
Despite these issues, a financial power of attorney offers the benefit of choice. An incapacitated individual who has not granted a power of attorney has no control over who is appointed by a court to oversee their financial affairs. The individual appointed may be someone that the incapacitated individual may not have wanted or trusted.
A financial power of attorney is often prepared in conjunction with an advance directive, which gives instructions as to the type of healthcare measures an individual wishes to be taken in extreme situations. The directive can name a healthcare proxy, who is usually a different person than the holder of the power of attorney. The two documents together can provide for all contingencies.
To learn more about how Jeffrey P. Hall, PLLC, can assist you with creating a financial power of attorney in the Phoenix metropolitan area, call us at 480-409-5174 or contact us online for a free consultation.