When does your POA for Finances become Effective?
In my two previous posts here and here I talk about Financial POAs – what is power of attorney for finances and how to choose your agent to be your financial POA. In this post, I want to cover the different ways you can design your POA to fit your needs.
What is Required
First, let's go over the formalities. In order for a POA for Finances to be effective, it needs to include the following:
Your Information
Your Agent’s Information (read more on agent HERE)
Your Signature
Witness signature — yes, you will need to have a witness sign your document saying, yep, I saw you sign it!
Notarization — you will also need to have this document formally notarized
What can you modify?
When you have a POA for finances drafted, there are few options that you can choose to include, or not include.
WHAT your agent can do
As I’ve mentioned before, you can give your POA a very broad power or a very limited one. For example if you are a business owner, you might need two different documents – one for your personal finances and one for your business needs. You may want your spouse to only handle your personal finances and another person to only handle your business needs.
WHEN your agent can do it
You can also specify when your agent is allowed to manage your finances. POA documents can become effective or ineffective at different times depending on how it's written.
What are the options?
Let’s go over some scenarios.
Durable Power of Attorney
A durable power of attorney means that the document is lasting. As soon as you sign it, it will go into effect immediately and continue to be active, even if you become incapacitated. So, your agent has financial power when you are healthy and continues to have power if something were to happen to you.
Non-Durable Power of Attorney
If you specify that you want a non-durable power of attorney, this means that once you become incapacitated, your POA is no longer effective.
Springing Power of Attorney
Think of a springing POA like a Jack-in-the-box. Your power of attorney is in writing, signed, and notarized — but it does not take effect until a specific event "springs" it into action. Once the trigger mechanism pops into place, your POA is active. Just like a Jack-in-the-box.
This trigger mechanism can be many different things.
A specific date.
If you have a real estate attorney attend a closing on your behalf, the "springing date" is the day of the closing. The real estate attorney cannot do anything else on your behalf prior to this date (or after).
A life event
Most often, this is in the event of incapacitation. Once the person who created the document is no longer able to make decisions for themselves, then the document can be used. So, if on Monday the person is doing just fine then the document will not work. If, however, on Tuesday, they get in a car accident and are now in a comatose state — the POA springs into action and the agent can help with financial decisions.
A few things to consider…
When it comes to Financial POAs, most people say they want a springing one. They don't want anyone to have access to their finances while they are healthy, but if something happens, they want to know that someone is there to help and take over.
In theory, this sounds great, doesn't it? It appears to be the best of both worlds. When you can manage things yourself, you don't have to worry about any actions the agent might take, but when you can't, your agent can take over.
Yes, that sounds great on the surface….
However, when you dive a little deeper into this – there are always two things that I ask my clients to consider
First…
If you choose a springing POA that is based on incapacity, someone must medically declare you incapacitated. It cannot be solely based on the fact that you are suddenly not paying your bills and three members of your family all agree that you can't handle that financial responsibility any longer.
In order for this to work, the person you nominated as your agent must be willing, and able, to have a physician sign the necessary paperwork. Sometimes this could create a pretty big hoop to jump through in order to get the POA springing into action.
This step may not be a big deal for you, but it could be for others. Your agent MUST have this sign-off from the doctor in order to act quickly on whatever financial obligation is needed.
Second…
I always ask people to think about who they select as their agent.
If its your son Joseph, and you can trust him for the must part but you really don’t want him to have access to anything until you absolutely can’t do it for yourself — that is perfectly fine!
However, let’s assume that you now become incapacitated and Joseph is suddenly in charge of everything. Is he sure of what to do? Is he capable of handling your accounts in the manner that you prefer?
It all comes down to trust
It all really boils down to trust. If you don't trust the person enough to act in your best interests and follow your directions when you're healthy and well, how can you trust them to make the decisions you want when you're extremely vulnerable and unable to make them?
Keep this in mind when you are choosing between a springing vs. not-springing POA.
When will a POA terminate?
A POA will terminate in one of two ways.
You put a date on it that says it’s no longer effective
Or you pass away and it terminates upon death
Once you pass away, there are a whole new set of rules and your POA will no longer be effective. Your agent can no longer help you with your finances once you are gone. Legally and financially, it is a different process to determine who is in charge of making sure everything gets taken care of from a financial standpoint.
So, if you have a power of attorney document but NO will or trust…
There is a gap in your estate planning!
The best way to make sure that your affairs are in order —with no holes or gaps — is to speak with an estate planning attorney and learn what needs to be done for your unique scenario!
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We hope you found this estate planning information helpful. As a reminder, the information presented here is for general informational purposes only. You are unique, and legal advice should be tailored to your unique situation. Do not rely upon any information here as legal advice. This information is not intended to create, and receipt or viewing does not constitute, an attorney-client relationship. If you would like to learn more about how we can protect your family or small business, please contact us!
Cherish Legal is an estate planning law firm based out of Rockford, Illinois. We are licensed to practice estate planning in Wisconsin and Illinois. We provide virtual estate planning services to families and legal counsel to small businesses located. Our services include: wills, trusts, power of attorney, estate plans, guardianship, trust administration, probate, and asset protection.
