When, Why and How To Make Someone Your Power of Attorney
The concept of giving another person total agency over your finances could be unsettling. Who wants to hand over the reins to someone else? What business is it of theirs to know about your money? Why on earth would you want to let a friend or family member call all the shots for you?
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But formally and legally allowing someone else to navigate your financial issues is actually crucial. Why? Because if you ever become incapacitated to the extent that you cannot duly manage your own money, someone else will have to do it for you. This is where a durable power of attorney comes critically into play.
So, how, when and why should you make someone your durable power of attorney?
A Durable Power of Attorney Form Is Necessary Because You Just Never Know
You may never need someone to make financial decisions for you. But life is unpredictable. You simply never know. Unfortunately, so many things could happen that render you unable to navigate your money.
“Car accidents, falls, strokes, aneurysms, dementia; these are just a few of the reasons why I stress the importance of having a Durable Power of Attorney in place,” said Melissa Negrin-Wiener, senior partner at Cona Elder Law. “Once there is a loss of mental capacity, regardless of the cause, it is too late to execute the documents.”
And think about just how many financial decisions you make not only throughout your life but even throughout your day.
“We pay the mortgage, rent, and bills, we enter into contracts; we buy food, clothing and other necessities,” Negrin-Wiener said. “If one cannot handle their financial affairs, they cannot do any of these things.”
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Sign a Durable Power of Attorney as Soon as You Turn 18
It’s highly recommended to sign a durable power of attorney form as soon as you reach adulthood.
“Once someone turns 18, there is no one with the legal authority to handle their financial affairs if they are unable to,” Negrin-Wiener said. “The inability to handle one’s own finances could be due to incapacity because of an injury, illness or accident and is not necessarily related to older age. Many people believe that a parent or a spouse can manage finances just by virtue of their relationship with the incapacitated individual. This is simply untrue. Therefore, once an individual turns 18, it is crucial that they execute a durable power of attorney naming an agent to act on their behalf.”
How To Create a Power of Attorney
Not every state has the same rules around power of attorney processes, so it’s important to find out what your state demands to formalize this process. Make sure you fill out the right form.
“In New York, the Power of Attorney is a statutory form,” Negrin-Wiener said. “If the correct form is not used, it will likely be rejected by financial institutions. The document must be executed pursuant to New York State law, which for certain documents requires disinterested witnesses and a Notary Public. The most recent statutory Power of Attorney contains a modification section wherein the statutory powers can be fleshed out, and additional powers can be added.”
Consider enlisting the help of a professional to make sure you fill out all paperwork correctly.
“Having a trusts and estates attorney involved in the drafting and execution of the Durable Power of Attorney will help ensure that it is done properly and that it will be accepted if and when the agent needs to use it,” Negrin-Wiener said.
How To Pick a Power of Attorney
Deciding on a power of attorney should take you a lot of time and consideration. Don’t do this on a whim. Really think about who is in your life that will honor your wishes and keep your finances as healthy as possible.
“Selecting the right individual to act as your power of attorney is crucial,” said Justin Stivers, financial advisor and founding attorney at Stivers Law. “This should be someone you trust implicitly, who understands your values, and is capable of managing your affairs responsibly.”
Inform All Relevant Parties
Let not only the person you want to be your power of attorney know about your decision (they’ll need to be fully looped in the process) but also all financial institutions you work with, your healthcare providers and any legal advisors. They all need a copy of your durable power of attorney form on file.
“This facilitates a smooth transition of decision-making authority when necessary,” Stivers said.
Perform Regular Reviews and Updates
The durable power of attorney you name doesn’t have to be the same one forever. It’s on you to make sure your wishes stay up to date and make any changes you deem necessary on a regular basis.
“Life circumstances and relationships change over time, so it’s essential to review your power of attorney periodically and make updates as needed,” Stivers said. “This ensures that your designated power of attorney remains aligned with your current wishes and circumstances.”
What Happens If You Don’t Have a Power of Attorney?
You want to get a move on filling out all necessary paperwork to name a power of attorney because if you don’t, the government will have to do the work for you in the event that you become incapacitated — and the outcome may not be what you want.
“If a person has reached the point that they can no longer understand the Durable Power of Attorney and, therefore, cannot sign one, there will need to be a guardianship proceeding filed with the courts to have someone appointed as legal guardian to make all decisions on behalf of the incapacitated person,” Negrin-Wiener said. “Therefore, naming an agent on a Durable Power of Attorney not only gives someone the ability to handle your affairs, but it also allows you the liberty to choose who that person is instead of leaving it up to the courts.”
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