A durable power of attorney for finances is an inexpensive, reliable legal document. In it, you name someone who will make your financial decisions if you become unable to do so yourself. This person is called your attorney-in-fact, or in some states, your agent. (Your document will include the correct term for your state.) If you ever do become incapacitated, the durable power of attorney will likely appear as a minor miracle to those who are close to you.
These terms will come up repeatedly as you make your power of attorney. Better to understand them from the outset.
Principal. The person who creates and signs the power of attorney document, authorizing someone else to act for him or her. If you make a durable power of attorney for finances, you are the principal.
Attorney-in-Fact (Agent). The person who is authorized to act for the principal. In many states, the attorney-in-fact is also referred to as an agent of the principal—and some states use the term “agent” exclusively. Your power of attorney will include the correct term for your state.
Alternate Attorney-in-Fact (Alternate Agent). The person who takes over as attorney-in-fact if your first choice cannot or will not serve. Also called successor attorney-in-fact or successor agent, depending on the state.
Durable Power of Attorney. A power of attorney that will remain in effect even if the principal becomes incapacitated. This is the kind of power of attorney you make with Nolo’s Durable Power of Attorney for Finances.
Incapacitated. Unable to handle one’s own financial matters or health care decisions. Also called disabled or incompetent in some states. Usually, a physician makes the determination.
In almost every state, you can create a valid power of attorney if you are at least 18 years old and of sound mind. This mental competency requirement isn’t hard to meet. Generally, you must understand what a durable power of attorney for finances is and does—and you must understand that you are making one.
Almost everyone can benefit from a durable power of attorney for finances. If you have a bank account, credit cards, income, bills, government benefits, rent or mortgage, a business, or any other financially-related concern that you manage, you need someone to take care of those concerns if you cannot do it yourself.
If you don’t have a durable power of attorney, your relatives or other loved ones will have to ask a judge to name someone to manage your financial affairs. These proceedings are commonly known as conservatorship proceedings.
You can make a power of attorney at any time. It’s a good idea to have one on file, to be prepared for an unexpected incapacity due to an accident or sudden health issue. It’s particularly important, however, to have a durable power of attorney if you fear that impending health problems may make it impossible for you to handle your financial matters.
If someone becomes incapacitated, panicky family members may consider just faking the signatures necessary to carry on routine financial matters. It may seem perfectly acceptable to sign Aunt Amanda’s name to a check if the money is used to pay her phone bill.
But this is forgery—and it’s a crime. The law is strict in this area to guard against dishonest family members who might loot a relative’s assets.
Forging a signature on checks, bills of sale, tax returns or other financial documents may work for a while, but it will probably be discovered eventually. And then the court proceeding everyone was trying to avoid will be necessary—and a judge will not be eager to put a proven liar in charge of a relative’s finances.
When you make a power of attorney you can give your loved ones legitimate and legal power to do many financial tasks, including signing checks on your behalf.
If you are married, don’t assume that your spouse will automatically be able to manage all of your finances if you cannot do so.
Your spouse does have some authority over property you own together—for example, your spouse may pay bills from a joint bank account or sell stock in a joint brokerage account. There are significant limits, however, on your spouse’s right to sell property that both of you own. For example, in most states, both spouses must agree to the sale of co-owned real estate or cars. Because an incapacitated spouse can’t consent to such a sale, the other spouse’s hands are tied.
And when it comes to property that belongs only to you, your spouse has no legal authority. You must use a durable power of attorney to give your spouse authority over your property.
EXAMPLE 1: New York residents Michael and Carrie have been married for 47 years. Their major assets are a home and stock. They own the home in both their names as joint tenants. The stock was bought only in Michael’s name, and the couple has never transferred it into shared ownership. Michael becomes incapacitated and requires expensive medical treatment. Without a durable power of attorney, Carrie cannot sell the stock to pay for medical costs.
EXAMPLE 2: Janice’s husband, Hal, is incapacitated and living in a nearby nursing home. Janice wants to raise money by selling Hal’s old car, which he can no longer drive, but she can’t because she doesn’t have a durable power of attorney and the title is in Hal’s name.
A central purpose of a revocable living trust is to avoid probate. But the trust can also be useful if you become incapable of taking care of your financial affairs. That’s because the person who will distribute trust property after your death—called the successor trustee—can also, in most cases, take over management of the trust property if you become incapacitated.
But few people transfer all their property to a living trust, and the successor trustee has no authority over property that the trust doesn’t own. So although a living trust may be helpful, it is not a complete substitute for a durable power of attorney for finances.
The two documents work well together, however, especially if you name the same trusted person to be your attorney-in-fact and the successor trustee of your living trust. That person will have authority to manage property both in and out of your living trust. You can also give your attorney-in-fact the power to transfer items of your property into your living trust.
EXAMPLE: Consuela, a widow, owns all the stock of a prosperous clothing manufacturing corporation. To avoid probate, she transfers the stock into a living trust, naming her brother, Rodolfo, as successor trustee. If Consuela becomes incapacitated, Rodolfo will become acting trustee and manage the stock in the trust for Consuela’s benefit.
Consuela also prepares a durable power of attorney for finances and names Rodolfo as her attorney-in-fact. That gives him authority over assets she does not transfer to the trust—for example, her bank accounts and car. In her durable power of attorney, she also gives Rodolfo the power to transfer property into her living trust, if he feels that’s in her best interest.
Joint tenancy is a way that two or more people can own property together. The most notable feature of joint tenancy is that when one owner dies, the other owners automatically get the deceased person’s share of the property. But if you become incapacitated, the other owners have very limited authority over your share of the joint tenancy property.
For example, if you and someone else own a bank account in joint tenancy, and one of you becomes incapacitated, the other owner is legally entitled to use the funds. The healthy joint tenant can take care of the financial needs of the incapacitated person simply by paying bills from the joint account. But the other account owner has no legal right to endorse checks made out to the incapacitated person. In practice, it might be possible—if not technically legal—to get an incapacitated person’s checks into a joint account by stamping them “For Deposit Only,” but that’s not the easiest way to handle things.
Matters get more complicated with other kinds of joint tenancy property. Real estate is a good example. If one owner becomes incapacitated, the other has no legal authority to sell or refinance the incapacitated owner’s share.
In a durable power of attorney, you can give your attorney-in-fact authority over property you own in joint tenancy—including real estate and bank accounts.