In this guide
What Is a Financial Power of Attorney?
A financial power of attorney is a written authorization that allows another person, known as your 'agent' or 'attorney-in-fact,' to handle financial matters on your behalf. The document can be as broad or as limited as you choose, from paying bills to managing investments.
It is important to distinguish a financial POA from a medical POA. A medical POA only covers healthcare decisions, while a financial POA covers money and property. Some states combine them into one document, but often they are separate.
The person who creates the POA is called the 'principal.' You can revoke the POA at any time as long as you are mentally competent, and it automatically ends upon your death. You can power of attorney with a state-specific template here.
- Agent's duties: manage bank accounts, pay bills, file taxes, handle real estate, and make investment decisions.
- POA types: general, limited, durable, and springing.
- A POA does not override your will or trust; it only operates during your lifetime.
What a Financial POA Covers
A comprehensive financial POA typically covers banking transactions, including writing checks, making deposits, and accessing accounts. It may also allow the agent to buy or sell real estate, manage rental properties, and handle mortgages or deeds.
Investment management is another key area. Your agent can buy and sell stocks, bonds, or mutual funds, and even change beneficiary designations on retirement accounts if you explicitly grant that power. However, some institutions have their own forms and may require additional documentation.
The POA can also cover government benefits, like Social Security or veterans' benefits, but note that federal agencies often have their own rules. For example, the Social Security Administration does not accept a POA for direct management of benefits; you may need a representative payee instead.
- Banking: deposits, withdrawals, checks, and electronic transfers.
- Real estate: buying, selling, leasing, and managing property.
- Taxes: preparing and filing returns, paying taxes, and dealing with the IRS.
- Business interests: managing a business you own, including partnership or LLC interests.
- Legal claims: settling lawsuits or pursuing claims on your behalf.
What a Financial POA Does NOT Cover
A financial POA does not give your agent the right to make healthcare decisions, create or change your will, or make gifts of your property unless you specifically include a gift-giving clause. Some states prohibit certain self-dealing, like transferring assets to themselves, unless explicitly authorized.
It also does not allow the agent to act after your death. Once you die, the POA is void, and the executor of your estate takes over. If you want someone to manage your affairs after death, that's handled by a will or trust.
Additionally, a POA does not override the rules of financial institutions. Banks and brokerage firms may require their own POA forms or may refuse to accept a POA that is not 'durable' or notarized correctly.
- No healthcare decisions: that requires a medical POA or living will.
- No changing your will or trust documents.
- No making gifts unless explicitly authorized.
- No managing retirement accounts like IRAs unless the institution accepts the POA.
Types of Financial POA: Durable, Springing, and Limited
The most common type is a 'durable' POA, which remains in effect even if you become incapacitated. This is crucial because a non-durable POA automatically ends if you lose mental capacity, defeating its purpose.
A 'springing' POA only takes effect when a specific event occurs, usually when a doctor certifies that you are incapacitated. This can be useful if you want to retain control until you can't act, but it may cause delays because institutions require proof of incapacity.
A 'limited' or 'specific' POA grants authority only for a particular transaction, such as selling a house or managing a bank account while you're abroad. It is not intended for long-term management.
- Durable: effective immediately and continues through incapacity.
- Springing: becomes effective only upon incapacity (or other condition).
- Limited: restricted to certain actions or a time period.
- General: broad powers, but can be made durable or non-durable.
How to Create a Valid Financial POA
To create a valid financial POA, you must be at least 18 years old and mentally competent. The document must be signed voluntarily, and most states require notarization. Some states also require witnesses, so check local laws.
You can use a do-it-yourself form, but it's wise to have an attorney review it, especially if you have significant assets or complex family situations. Many states have statutory forms that are easy to fill out, but they may not cover all your needs.
Once signed, you should give a copy to your agent and to any institutions where you have accounts. Many banks and brokerages have their own POA forms, so it's best to ask them in advance to ensure they will accept your document.
- Choose a trustworthy agent who is organized and financially savvy.
- Fill out the form carefully, specifying powers you want to grant.
- Sign in the presence of a notary public (and witnesses if required).
- Distribute copies to your agent, family members, and financial institutions.
- Review and update the POA every few years or after major life changes.
Common Mistakes to Avoid
One common mistake is failing to make the POA durable. If you become incapacitated without a durable POA, your family may have to go to court to get a guardianship or conservatorship, which is costly and time-consuming.
Another error is not specifying powers clearly. For example, if you want your agent to be able to sell your home, you must explicitly state that. Vague language can cause institutions to reject the document.
Finally, many people forget to update their POA after major life events like divorce or the death of the named agent. If your agent is your spouse and you divorce, the POA may be automatically revoked in some states, but not all. Always review your POA regularly.
- Not making it durable.
- Choosing an unreliable agent.
- Failing to specify gift-giving or real estate powers if needed.
- Not notarizing or using outdated forms.
- Not communicating your wishes to your agent and family.