A financial power of attorney is the document that lets someone you trust handle your money and property if you cannot. Of all your planning documents, it is often the one most likely to be used during your lifetime. It may be needed after an accident, during an illness, or with age.
In the questionnaire, this person is called your Financial Agent (Your Power of Attorney). This article explains what the document does and how to choose the right person.
Why this matters
If you cannot manage your finances and have no power of attorney, your family may need to ask a court to appoint a conservator. A conservatorship takes time and money, and the conservator usually files reports with the court for as long as it lasts. The court also decides who serves, which may not be the person you would have chosen.
Many people assume that a spouse or joint account holder can act for them. Often that is not the case. A spouse usually cannot sign for accounts in your name alone, such as a retirement account. They also cannot sell real estate you own together without your signature. A power of attorney addresses these situations.
Key terms
- Principal: You, the person who signs the power of attorney.
- Agent: The person you name to act for you. Older documents may use the term attorney-in-fact, which means the same thing.
- Durable: A power of attorney that remains in effect if you become incapacitated. Because the document exists for that situation, durability is essential.
- Successor Agent: A person who serves if your first Agent cannot or will not.
- Co-Agents: Two or more people named to serve at the same time.
What your Agent can do
A financial power of attorney can give your Agent broad authority over your financial life, including:
- Paying bills and managing bank and investment accounts
- Filing tax returns and dealing with the IRS
- Handling insurance, Social Security, pensions, and other benefits
- Buying, selling, or managing real estate
- Managing your digital accounts
- Moving property into your Revocable Trust, if you have one
Certain powers carry greater risk, so the document generally must grant them expressly before your Agent can use them. These include making gifts, changing beneficiary designations, and creating or changing trusts. Talk with your attorney about whether to include them. Gifting authority, for example, can matter if you may later need help qualifying for long-term care benefits.
When it takes effect
A power of attorney can be written to take effect in one of two ways:
- Immediately: Your Agent can act as soon as you sign. Many people choose this approach because it avoids any question about when the Agent’s authority begins. You still make your own decisions while you are able to.
- Only if you become incapacitated: Your Agent can act only after you can no longer manage your affairs, usually shown by a doctor’s written statement. Some people find this more reassuring, but obtaining that confirmation can delay matters at the very time help is needed.
In either case, the person you name should be someone you trust completely. Your attorney can help you decide which approach fits you.
Choosing your Agent
Because your Agent will have significant authority over your finances, trustworthiness matters most. Also consider:
- Whether they are organized and comfortable with paperwork, accounts, and deadlines
- Whether they live nearby or can handle matters from a distance
- Whether they are willing to serve and have the time
- How they get along with the rest of your family
- Whether the same person should also serve as your Health Care Agent, or someone different
Always name at least one Successor Agent in case your first choice cannot serve. If you name Co-Agents, they usually must act together, signing and agreeing on everything, unless your document says they may act separately. This can provide a safeguard, but it can also slow decisions.
For more on choosing the people in your plan, see this article.
Your Agent’s duties
Your Agent is a fiduciary. They must act in your best interests and follow any instructions in the document. They must also keep your money separate from their own and keep records of what they do. They should also cooperate with your Health Care Agent, so that your care and your finances work together.
For more on these duties, see this article.
How it fits with the rest of your plan
A financial power of attorney works alongside your other documents, and each has its own job:
- Revocable Trust: If you have one, your Successor Trustee manages the property held in it if you become incapacitated. Your Agent handles everything outside the Revocable Trust, such as retirement accounts and tax returns, and can move other property into it.
- Health Care Power of Attorney or Advance Directive: A separate document names the person who makes your medical decisions.
- Will or Revocable Trust at death: A power of attorney ends when you die. From then on, your Personal Representative or Trustee takes over.
Practical tips
A few steps now can make your Agent’s work easier later:
- Tell your Agent and Successor Agent that you have named them, and where the original document is kept.
- Keep a list of your accounts, advisors, and where important records are, so your Agent knows where to start.
- Review the document when your life changes, such as after a marriage, divorce, or move, or if your Agent can no longer serve.
- To cancel a power of attorney, ask your attorney how to revoke it and how to notify the people who have a copy.
Want to read more?
These articles are optional.
- Questionnaire help: If you are filling in the questionnaire, see the help for the Fiduciary Choices page.
- Choosing the people who carry out your plan: What to look for in each role. See this article.
- Duties of the people you name: What your fiduciaries must do. See this article.
- Health Care Agents: Choosing the person who makes medical decisions for you. See this article.
- Digital assets: Planning for your online accounts and digital property. See this article.
- Glossary: Common estate planning terms. See this article.
- Beneficiary designations: How retirement accounts, life insurance and other property outside your Will fit with your plan. See this article.
- Young adult children: The documents a child can sign at 18. See this article.