A permanent financial power of attorney is an extremely important estate planning document. This document enables a competent adult to appoint a representative to act on your behalf with regard to your financial affairs if for any reason you were incapacitated or unable to manage your finances.
Delaying the creation and execution of a permanent financial power of attorney can be a critical mistake for a number of reasons. To sign a power of attorney, you must first have the ability to sign the document. So if you develop a disease that limits your capacity, you may not be able to sign a power of attorney in the event of a crisis. Unfortunately, many people delay completing this important estate planning step until it is too late. To execute a power of attorney and name an agent who is in your shoes, you must have the capacity.
When a person does not have a power of attorney and the person is no longer able to make responsible decisions due to their inability to make responsible decisions, the only alternative is often a guardianship procedure. Guardianship proceedings are fraught with litigation and can be expensive. A guardianship procedure can also be invasive as it profoundly deprives the individual of freedom and dignity. Once a guardian has been appointed by the court, there are ongoing reporting requirements for the guardian as well as judicial control over the guardian’s actions. These reporting requirements, which include annual financial reporting, can be time consuming and costly, which often results in the need for ongoing legal representation. Most situations that require guardianship could easily be avoided if a proxy had been put in place before the crisis.
Unfortunately, there are many misconceptions about power of attorney. One of these misconceptions is that if you are married and jointly own assets with your spouse, or if you co-own a child in your bank account, you are avoiding the need for a power of attorney. Although a co-owner on a bank account gives individuals access to write checks, withdraw cash, and communicate with the bank regarding that particular account, co-ownership is limited to that particular asset. When someone is no longer able to manage their wealth, their wealth often consists of more than just one bank account. The Power of Attorney is required to make the minimum required distributions from retirement accounts, deal with annuities, sell real estate, manage investment accounts, handle tax matters, to name a few. However, as you can imagine, this list of limitations is extensive.
If you haven’t already drawn up a Power of Attorney, you should contact an attorney to begin the process. Due to the importance of a power of attorney and the fact that each power of attorney should be tailored to the specific needs of the individual, it is highly advisable to use an attorney for the legal document. Often times, the money you think you will save by creating the document yourself or online will cost your family, friends, or wealth more to repair later. Your power of attorney will need to be tailored to you and a lawyer can explain all of the options available in the power of attorney document.
The legal advice in this column is of a general nature. Contact your lawyer for advice that is specific to your particular situation.
Rebecca A. Hobbs, Esquire, is a licensed attorney in the Commonwealth of Pennsylvania and certified as an elderly law attorney by the National Elder Law Foundation, as approved by the Pennsylvania Supreme Court. She is the director of the law firm O’Donnell, Weiss & Mattei, PC, 41 High Street, Pottstown, and 347 Bridge Street, Phoenixville, 610-323-2800, www. owmlaw.com. You can reach Ms. Hobbs at [email protected]
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