What is a financial power of attorney?

A financial power of attorney is a legal document that lets you appoint someone to manage your finances and property for you. These tasks could include paying bills, making bank deposits, collecting your insurance benefits, and more. The person you name in your POA to make these decisions is often called your agent or attorney-in-fact.

We never know when something unexpected could happen to us, like a sudden injury or illness. With a financial power of attorney, you create peace of mind for yourself and your loved ones by entrusting someone to manage your finances and property in the event you’re unable to care for these things yourself.

A financial power of attorney is just one type of POA. You can read about the other types here.

What’s the difference between power and attorney and durable power of attorney?

The term “durable” means your agent’s authority to act on your behalf continues even if you become incapacitated. In other words, your agent would be able make financial decisions for you if you were unable to make them yourself. For estate-planning purposes, many people choose to make their financial POA durable. This lets them choose someone to look after their finances and property if they were suddenly unable to.

When does your durable financial power of attorney take effect?

A durable financial power of attorney (DFPOA) takes effect as soon as you’re incapacitated. This could include if you:

• Are under general anesthesia
• Have an illness that leaves you unable to communicate, such as a stroke
• Have an accident that leaves you in a coma or unconscious state
• Suffer from Alzheimer's or another form of dementia that impacts your ability to make rational decisions

Why do you need a durable financial power of attorney?

Like all estate planning documents, it’s always a good idea to have a power of attorney in place before you need it. If you ever become too ill or injured to manage your personal affairs, your loved ones may have to step in and make certain decisions for you.

If you don’t have a DFPOA, the court will appoint someone to oversee your affairs, which can take time and cost money. And the person the court appoints may be different than the person you would have chosen, had you made a financial POA. By appointing a trusted person to act as your financial agent before you actually need one, you can ensure your finances and property are handled according to your wishes.

You may also decide to create a POA to address concerns after being diagnosed with a degenerative disease. Alzheimer’s, cancer, ALS, and Huntington’s disease are conditions that will likely make it difficult for you to manage your personal affairs at some point. After diagnosis, you may want to create a financial power of attorney while you’re still feeling well.

What power can I grant to my agent in a DFPOA?

Most people use their DFPOA to grant their agent broad power over their finances and property. But how much authority your agent has over your personal affairs is ultimately up to you. Among other things, you can grant your agent the power to:

• Use your assets to pay for your family’s everyday expenses
• Pay your healthcare bills
• Make bank deposits or withdrawals
• Handle your taxes and file them on your behalf
• Keep your business(es) running
• Manage your real estate property, including your home
• Hire attorneys to represent you in court
• Invest your money in the stock and bond markets
• Oversee your insurance and retirement accounts

Some online self-help software, including FreeWill, lets you choose which subjects you want your agent to have authority over.

Are there limits on the way my agent can use the powers I’ve granted them?

Your agent is legally required to act in your best interests. Among other things, your DFPOA agent must generally:

• Manage your property and money honestly and in a reasonable manner
• Avoid situations that would create a conflict of interest between their personal interests and yours
• Keep records of the transactions they enter into on your behalf

Despite these rules and responsibilities, your agent will have a lot of control over many areas of your life. When selecting an agent, it’s important to choose someone you trust to act in your best interests.

Financial power of attorney vs. medical power of attorney

A medical power of attorney lets you grant someone legal authority to make decisions about your medical care in the event you’re unable to. This can include important decisions about treatment options, medication, surgery, and end-of-life care.

A financial power of attorney, on the other hand, only allows your agent to make decisions about your financial assets and property.

If you’ve named two separate people as your medical and financial powers of attorney, they’ll likely work together to make sure you can afford the medical care chosen for you.

What’s the difference between an agent and an executor?

An agent is the person legally authorized in your DFPOA to act on your financial matters. Your will executor is the person you choose to manage your estate’s affairs, including the distribution of your property after you die. Your agent’s authority under your DFPOA ends once you pass away. Your executor’s authority, on the other hand, begins after your death.

Your agent and executor can be the same person. Just make sure you’ve filled out the correct legal forms for each appointment.

If I have a DFPOA, do I need a will?

Yes! These two documents cover different aspects of your life and finances, so estate attorneys recommend you have both. Your last will and testament explains how you want your belongings distributed after you die. Your DFPOA assures your finances and property are cared for in the event that you’re still alive, but incapacitated.

How to create your durable financial power of attorney

Here are the basic steps to make your DFPOA:

1. Decide who you want to be your financial agent. Your agent will have a lot of authority, so you should choose someone you trust to have your best interests at heart. It’s a good idea to speak to this person beforehand and make sure they’re willing to be your agent.
2. Decide which financial decisions you want your agent to be able to make.
3. Get a durable financial power of attorney form. Most states provide statutory forms for free, but it’s not always easy to customize them or include detailed preferences. You can also use online software to create your DFPOA for free.
4. Complete the form, and sign and witness it according to the laws in your state. In most states, you’re required to get your DFPOA form notarized. Some states also require additional witnesses, or the signature of your agent.
5. Give a copy of your DFPOA form to your agent and other interested parties. If you want your agent to have authority over your real estate property, you should generally file a copy of your DFPOA with your local land records office.
6. Keep your DFPOA form in a safe place with your other estate planning documents. This could be in a fireproof safe in your home, a safe deposit box, or at a trusted attorney’s office.
7. Keep your DFPOA updated as your circumstances change. Sometimes banks and other institutions require regular updates as proof your wishes haven’t changed.

You aren’t required to use a lawyer to create your DFPOA. However, you may find it useful to consult with one to make sure your document covers all your needs.

How to revoke a durable financial power of attorney

You can revoke or cancel your DFPOA at any time, as long as you’re considered mentally capable of doing so. To revoke your DFPOA, you can fill out a revocation of power of attorney form, and have it witnessed and notarized. This document indicates that you no longer want your chosen agent to act as your DFPOA. You can also create a new DFPOA document and name a new agent, or change your current agent’s responsibilities.

Once you’ve created either of these documents, you should notify your original agent in writing to let them know you’re revoking their power of attorney. You should also reach out to third parties who have your POA on file, like your bank, to let them know about the revocation.

None of us can predict the future. With a durable financial power of attorney, you can give your loved ones the peace of mind that your property and financial assets will be managed properly in the event you’re unable to manage them yourself.

Ready to get started? Create your durable financial power of attorney today.