PSA: You Need A POA

Important Planning Tip: A power of attorney designation can provide peace of mind that your interests will be protected if something unexpected happens.

Many people understand the value of a retirement and estate planning, but often fail to consider the importance of having a power of attorney (POA) until a serious medical event occurs. By that point, it may be too late.

This is an issue that should be addressed well in advance of when you actually need it. With a POA designation in place, somebody (that you trust) will be in a legal position to act on your behalf if you are suddenly incapacitated and unable to make decisions. You can become incapacitated and unable to handle your own financial affairs at any age in the case of an accident or an unexpected health issue, however, the risk increases as you grow older.

A durable financial POA can act on your behalf to handle your financial matters when you are no longer able to or no longer wish to retain control. A distinction should be made from a healthcare POA that only allows you to delegate important medical decisions.

If you are already retired or approaching retirement, you should give serious thought to designating a power of attorney.

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Identifying the right fit

You may choose to name a family member, friend or even a professional (such as an attorney) to handle POA responsibilities. The goal is to identify someone you trust and know to be dependable in the event they are called upon to act.

The trust factor is crucial because you don't want to be exposed to a situation where the person you have chosen as POA takes advantage of their role for personal gain.

Married couples may consider their spouse to be the potential surrogate they would trust the most, but as both grow older, each person could lose the capacity to make decisions. It may make sense to name someone else, such as a trusted family member, to carry the responsibility. It is important when establishing a POA designation to choose successors who can step in if the primary designate is no longer able or willing to fulfill the role.

Roles & responsibilities

The two primary parties involved in the POA arrangement are:

• The principal who identifies the individual or entity that will be responsible for making decisions if the principal is longer able to;
• The agent, the individual or entity designated to carry out the POA role. This is also known as attorney-in-fact.

The principal should carefully consider what powers specifically are granted to the agent in the POA document. If the agent has the power to change the beneficiaries or distribute money to others including themselves. These powers could be abused by an agent and could lead to family disputes. Carefully read through each section of the POA document before signing and seek counsel from an attorney on how to enact provisions in your POA document to limit possible exploitation.

The agent may not be familiar with the fiduciary role to which they've been appointed. It's important the agent understands their primary responsibilities:

• To make decisions in the best interest of the principal, superseding the agent's own interests, or those of others.
• To manage money, investments, and property with care on behalf of the principal, (ensuring that bills are paid, debts are collected and all investment decisions are practical and judicious).
• Never co-mingle the principal's money or property with anybody else's, and avoid reimbursing yourself with the principal's personal funds.
• Keep accurate records of all financial transactions, including payments, expenses and investments.

be aware of your state’s laws

The ability to establish a POA designation is something individuals can take upon themselves without having to deal with courts. A POA is a legal document, and in many states you may be required to complete appropriate paperwork and have signatures notarized.

There is general uniformity in the laws among different states, but some states are very specific in defining the power of attorney role, while others are less so. To avoid any complications, it’s always better to provide very direct guidelines outlining the powers of the POA.

get it done!

You never know when a health issue will arise that may leave you unable to manage your own financial affairs. That could be a physical issue or a cognitive one (the number of Americans living with dementia could triple by 2050 according to the Alzheimer’s Association).

If a POA is designated prior to your becoming unable to manage your affairs, you'll be prepared. But, with no such designation in place, significant issues can occur that may complicate your financial life.

Try to avoid doing it at the last minute, or failing to do it at all—and when you do it, keep the designation updated by reviewing it frequently. If a person no longer has the capacity to make a designation, other measures will be required that will make the process of managing financial matters more complicated.

Though an attorney isn't required, working with one anyway helps to ensure documents are drawn up correctly and with appropriate specifications.

Planning for potential incapacity in the future should be part of your retirement and estate planning conversations. A POA designation can provide the peace of mind that your interests will be protected if something unexpected happens.