 Personal Finance PowerPoint Presentation, Power of Attorney. Prepare to get financially fit by practicing personal finance. Support Accounting Instruction by clicking the link below, giving you a free month membership to all of the content on our website, broken out by category, further broken out by course. Each course then organized in a logical, reasonable fashion, making it much more easy to find what you need than can be done on a YouTube page. We also include added resources such as Excel practice problems, PDF files and more like QuickBooks backup files when applicable. So once again, click the link below for a free month membership to our website and all the content on it. Most of this information comes from Investopedia, Power of Attorney, PoA meaning types and how and why to set one up, which you can find online. Take a look at the references, resources, continue your research from there. This by Adam Hayes, updated July 4th, 2022 in prior presentations. We've been taking a look at estate planning, then particular tools and components of estate planning that could be applicable depending on your situation. This time that being the power of attorney. First question, what is a power of attorney? The term power of attorney, PoA refers to a legal authorization that gives a designated person the power to act for someone else. So you are in essence allowing someone else to act as your agent. Some area where you would typically be making the decisions. You're delegating that decision making process to somebody else and that person hopefully should be making those decisions in accordance with your best interest in mind. So as such a power of attorney, PoA gives the agent or attorney in fact the authority to act on behalf of the principal. So one of the most common ways we see this is when you're in a legal type of situation and you ask the lawyer possibly to be making decisions on your behalf. You've given them the capacity to act in your best interest in your stead in that case. You can think of like real estate agents acting as an agent kind of situation as well and the idea being a particular component in your life. You're allowing someone else to act in your stead. If you have situations where you're incapacitated, for example, you might have situations where you need to of course assign someone else the authority possibly to be acting in your stead in that case as well. So the agent may be given broad or limited authority to make decisions about the principal's property, finances, investments, or medical care. So those kind of specialties, the specifics should be determined and will typically be in the documentation of the specific kind of power of attorney or the reason for which the power of attorney is being created. There are two main types of POAs, power of attorney, financial and healthcare both of which provide attorney in fact with general or limited power. So the expanse of the scope of the power of attorney is something that you want to of course keep in mind when you're thinking about this general concept of a power of attorney. How a power of attorney POA works. A power of attorney is a legal document that involves the agent or attorney in fact and the principal. It is used in the event of a principal's temporary or permanent illness or disability or when they can't sign necessary documents. The principal must choose a POA, power of attorney, who they trust to handle their affairs for them. So clearly you want to have a power of attorney that you think is capable of doing the task, making the decisions and that's going to be acting in your best interest. Documents can be obtained online or through a lawyer. Both parties must sign the paperwork. A third party is usually required to witness it. So you typically need that third party for the verification process. Depends on the state law often times. So the POA document authorized the agent to represent the principal in all property and financial matters as long as the principal's mental state of mind is good. If the principal becomes incapacitated, incapable of making decisions for themselves, the agreement automatically ends. So clearly the one that's acting as the agent needs to have the mental capacity to do so. A power of attorney can end for several reasons such as when the principal revokes the agreement or dies when a court invalidates it or when the agent can no longer carry out the responsibilities outlined. In the case of a married couple, the authorization may involve if the principal and the agent divorce. So there are many types of power of attorney. A durable POA power of attorney takes effect when the document is signed while a springing power of attorney comes into effect only if and when the principal becomes incapacitated. So you might say I'm going to have a power of attorney for whatever reason set up at this point in time or you might say I'm going to set up in advance a future thing that could happen and if that thing did happen the power of attorney springs into taking effect at that point in time. A power of attorney may also be limited to medical matters enabling the agent to make crucial decisions on behalf of an incapacitated person. A power of attorney for use in case of need might be considered by anyone planning for unexpected incapacitation or long-term care no matter how remote such events appear to be. So these are things we can't basically plan for in the future. We don't know what's going to happen so having one in place might be good because it could spring into effect if a certain future event happened. It could also be needed for someone expecting to be away from home and difficult to reach for some time. Special considerations. There are many good reasons to make a power of attorney as it ensures that someone will look after your financial affairs if you become incapacitated. You should choose a trusted family member, a proven friend or a reputable and honest professional. Remember however that signing a power of attorney that grants broad authority to an agent is very much like signing a blank check. So make sure you choose wisely and understand the laws that applied to the document. So you want to when you're choosing someone obviously you want someone you trust and you want to know the scope of the authority that you're given to that individual because oftentimes it's fairly it could be fairly broad depending on the circumstances of the power of attorney. Types of power of attorney. There are two types of POAs are financial and health care. We outline some of the main differences between these two and highlight some of the main types of financial POAs. Health care power of attorney. HCPOA you might hear it called. The principal can sign a durable power of attorney for health care or health care POA if they want an agent to have the power to make health related decisions. This document also called a health care proxy outlines the principal's consent to give the agent POA privileges in the event of unfortunate medical condition. The POA for health care is legally bound to oversee medical care decisions on behalf of the principal as such. It kicks in when the principal can no longer make health related decisions on their own. Financial power of attorney on the other hand. The financial POA is a document that allows an agent to manage the business and financial affairs of the principal such as signing checks, filing tax returns, mailing and depositing social security checks and managing investment accounts when and if the latter becomes unable to understand or make decisions. The agent must carry out the principal's wishes to the best of their ability. That's what it means to act as an agent of someone else in general at least to the extent of what the agreement spells out as the agent's responsibility. So within the scope of the term of the power of attorney they are acting in the best interest of the principal. A financial POA gives that individual a wide range of power over one's bank account including the ability to make deposits and withdraw, sign checks and make or change beneficiary designations. That's a wide scope of abilities within the financial sector. So again of course you want someone that you can trust. They should be acting in your best interest but clearly there are agency problems because their interest might not line up to what the best interest of the principal would be. Financial POAs can be divided up into several different categories. These are the general POA, limited power POA and durable POA. So we have the general power POA. This POA allows the agent to act on behalf of the principal in any matter as allowed by state laws. The agent under such an agreement may be authorized to handle bank accounts, sign checks, sell property, manage assets and file taxes for the principal. You got the limited POA. A limited power of attorney gives the agent the power to act on behalf of the principal in specific matters or events. So now you're narrowing the scope, the range in which the agent can act. It might explicitly state that the agent is only allowed to manage the principal's retirement accounts for example. This type of POA may be in effect for a specific period. For example, if the principal will be out of the country for two years, the authorization might be effective only for that period. You got the durable power of attorney. DPOA, you might hear it called, the durable POA remains in control of certain legal property or financial matters specifically spelled out in the agreement even after the principal becomes mentally incapacitated. While a durable POA power of attorney can pay medical bills on behalf of the principal, the durable agent cannot make decisions related to the principal's health such as taking the principal off life support. So that's those two decisions are different. You got the financial side and you've got the medical side. So when the agent acts on behalf of the principal by making investment decisions through a broker, the broker would ask to see the DPOA. The conditions for which a durable POA may become active are set up in a document called the quote springing and quote power of attorney. A springing POA defines the kind of event or level of incapacitation that should occur before the DPOA springs into effect. That's going to be the springing component because it's going to be contingent in essence on some future event. So a power of attorney can remain dormant until a negative health occurrence activates activates it to a DPOA. A springing power of attorney should be very carefully worded to avoid any problems in identifying precisely when and if the triggering event has happened. So clearly if you're setting something up that it's going to be contingent upon some event that could happen in the future, you don't want that thing to be vague. You'd like it to be a specific thing that could happen. So people aren't able to know precisely there's not any disagreement is what you would like to have as to when something should be taking effect. So how to set up a power of attorney you can buy or download a POA template. If you do be sure it is for your state as requirements differ. So state laws will differ from state to state. So you want to make sure that you are in compliance with your locale. However, this document may be too important to leave to the chance that you got the correct form and handle it properly. So many states require that the signature of the principal the person who initiates the POA be notarized. You have a third person a notary that's going to verify that some states also require that witnesses signatures be notarized. The following provisos apply generally nationwide and everyone who needs to create a POA should be aware of them. So there are no standard POA form for all 50 states state law and procedures vary. So you might say, is there, you know, one template like a federal template? Well, this isn't federal taxes. It's not basically under federal law. It's going to be handled state by state. Therefore, there will be differences on the state level generally. So all state except some version of the durable power of attorney, a few key powers cannot be delegated. These include the authority to do the following make amend or revoke a will contract a marriage in most cases, although a handful of states allow it. A vote, but the guardian may request a ballot on behalf of the principal. So while the details may differ, the following rules apply coast to coast. Put it in writing. So typically this is a type of document, you know, you can have oral type of agreements, people making oral agreements, but typically this is something that you put in writing. While some regions of the country except oral POA power of attorney grants verbal instruction is not a reliable substitute for getting each of the power of attorneys granted to your agent spelled out word for word on paper. So even if you're able to have an oral contract for a power of attorney, it's not something that you would think would be advisable with this kind of with this kind of thing. Typically you'd want to spell it out exactly what the scope is that you're talking about what's being covered and so on. Written clarity helps to avoid arguments and confusion. And that makes sense when you say it, but actually in practice, people often basically intuit the opposite. Like, well, if we just make things really vague, everybody will be happy. And kind of everybody is happy until something actually happens where a decision needs to be made and no one knows what's going to happen. And then everybody's unhappy. So it kind of kind of delays. There's usually more unhappiness that results in vagueness. It's just that you might delay it a bit than clarifying it early. But in any case, use the proper format. So many variations of POA forms exist. Some POAs are short lived while others are meant to last until death. Decide what powers you wish to grant and prepare a POA specific to that desire. The POA must also satisfy the requirements of your state to find a form that will be accepted by a court of law in the state in which you live. Perform an internet search or ask a local estate planning professional to help you. The best option is to use an attorney. So obviously you can hire an attorney to help you out with that process if you need to as well, although attorneys can be expensive. Identify the parties. The terms for the person granting the POA is the principal. The individual who receives the power of attorney is called either the agent or the attorney. In fact, check whether your state requires that you use specific terminology. Delegate the powers. The POA can be as broad or as limited as the principal wishes. However, each of the powers granted must be clear even if the principal grants the agent a general POA. In other words, the principal cannot grant sweeping authorities such as, quote, I delegate all things having to do with my life end quote. Make sure that when you're thinking about the broadness, the scope of the power of attorney that you consider what that scope should be and make it specific. Specify durability. And most states POA terminates if the principal is incapacitated. If this happens, the only way an agent can keep their powers is if it was written with an indication that it is durable, a designation that makes it last for the principal's lifetime unless the principal revokes it. So if you have a power of attorney in place and it's there for you're supposed to be making decisions over it, the idea is that well, you can revoke it at some point in time. Someone is acting as your agent. You can decide for them not to act as your agent in the future. But if you become incapacitated, unable to revoke it, then if you would think then legally it should it should just be not in effect at that point in time because you don't have the power to revoke it. Unless you set up the power of attorney specifically to be there in the event that you become incapacitated, for example. So notarize the POA power of attorney. Many states require powers of attorney to be notarized. Even in states that don't, it is potentially easier for the agent if a notary's seal and signature are on the document. You want to make sure that you can of course verify the document to make it as easy as possible. A notary might be required and even if not might be a good practice. Record it. Not all powers of attorneys must be recorded formally by the county to be legal. But recording is standard practice for many estate planners and individuals who want to create a record that the document exists. File it. Some states require specific kinds of POAs to be filed with a court or government office before they can be made valid. For instance, Ohio requires that any POA used to grant grandparents guardianship over a child must be filed with the juvenile court. So it also requires a POA that transfers real estate to be recorded by the county in which the property is located. Choosing a power of attorney like the property deed for your house or car, a POA grants immense ownership authority and responsibility as a matter of life and death in the case of a medical POA. And you could find yourself facing financial privation or bankruptcy if you end up with a mishandled or abused durable POA. Therefore, you should choose your agent with the greatest care to ensure your wishes are carried out to the greatest extent possible. It is critical to name a person who is both trustworthy and capable to serve as your agent. This person will act with the same legal authority you would have, so any mistakes made by your agent may be difficult to correct. Even worse, depending on the extent of the powers you grant, there may be a danger of self-dealing. So an agent may have access to your bank account, the power to make gifts and transfer your funds, and the ability to sell your property. So obviously they should be acting on your behalf as the agent, but they have, I mean, your desires or acting on your behalf may not line up exactly with their desires and so on. That's an agency kind of problem. So you want to have a trustworthy person involved there that can overcome the agency problem and try to be acting on your behalf. So your agent can be any competent adult, including a professional, such as an attorney, accountant or banker, but your agent may also be a family member such as a spouse, adult child or another relative. Naming a family member as your agent saves the fees a professional would charge and may also keep confidential information about your finances and other private matters quote in the family end quote. In the family, that's the worst place. That's the most dangerous location. In any case, naming children as power of attorney, parents who create POAs very commonly choose adult children to serve as their agents compared to naming one spouse as the agent. The relative youth of the child is an advantage when the purpose of the POA is to relieve an aging parent of the burden of managing the details of financial investment affairs or provide management for an aging parent affairs should the parent become incapacitated. So obviously when you're thinking about a power of attorney as kind of like your estate planning, it's beneficial to be choosing someone who is not basically your age because although you might die at different times, you still have that same kind of kind of problem. So having a younger person that hopefully can take on those responsibilities and have the capacity to do so and be more likely to when needed could be good. So in these cases of spouse named as the agent who is near the same age as the person creating the POA may come to suffer the same debilities that led the POAs creator to establish it defeating its purpose. When the child is honest, capable and respects the parent's desires, this can be the best choice for a POA. When there is more than one child, parents may struggle with the decisions of who to select for the role of the agent. This is not a decision to be taken lightly. So again, this is one of those things where you can try to push it off into the future, but you probably want to be more specific about it upfront and try to define things out even though it can cause some hassle and so on. But the agent named under the POA acts with your authority so costly financial mistakes resulting from carelessness or lack of financial understanding may be impossible to fix. The same is true of acts that create intra-family conflict by favoring some members over others. So clearly when you have a situation like an estate or something like that, you've got assets that are being distributed, someone's going to feel like they're not treated fairly and this and that. All you can do is try to make it as specific as possible based on what you think would be the best way to go and typically you'd probably want to be picking someone if you had someone that you could trust to do that to then allocate in accordance with your wishes as fairly as you think you can do. Worst of all, when delivered into the wrong hands, a POA may create what is often called a license to steal. There are instances when the agent abuses their power and makes decisions about financial and medical matters for their own benefit rather than staying in line with the wishes of the principal. So once you're acting as your agent doesn't mean that their desires of course may not line up with your desires and that can cause problems. Children have different characters, skills and circumstances and the powers given to them can avert these dangers. So the good news is that you can have multiple POAs naming separate agents and customize them for each child's skill set, temperament and ability to act on your behalf. Factors to consider, consider these three key factors when choosing which child you want to give important powers to under a POA. Trustworthiness probably one of the biggest most important thing you would think. This is the single most important trait for an agent named under a POA. So obviously they're going to have a lot of controls possibly if you're talking about financial kind of assets under their control. And so clearly you need someone trustworthy especially if you're going to have them allocating to other individuals. This includes not just honesty but also reliability and performing tasks that need regular attention from managing an investment portfolio to paying bills and diligence in acting according to your wishes. So clearly if they have to manage the bills and that kind of stuff they have to have the competence to be able to do that. Be able to be trustworthy to do that and try to act on your behalf would be the ideal. So abilities of each child, specific abilities of different children may make them best suited to take on particular rules in managing your financial affairs. You can use limited POAs to give different children defined and limited powers over different aspects of your finances. These may include the following, managing everyday expenses of the family, receiving income from and paying expenses on real estate, controlling a financial portfolio, managing insurance and annuities, running a family's small business. So clearly the more of kind of assets that you have that you are managing at the point of death then the more you have to do with your estate planning. And so you might try to segregate things up in that way depending on your particular circumstance. Multiple agents, more than one agent can be named by a POA either with the authority to act separately or required to act jointly. So you could say, you know, I want, you know, these people to have the capacity to have multiple agents, multiple agents acting, you know, separately, making their own decisions kind of like a partnership, but each partner has the power to make decisions or you might try to set up a situation where they have to have an agreement. So you have a committee kind of situation where they have to come together and agree to move forward, which could create gridlock, but you know, there's pros and cons of each of these kind of things. Having two children separately authorized to manage routine items can be a convenience if one becomes unavailable for some reason while requiring two to agree on major actions like selling a house can assure family agreement over major decisions. So you might try to try to purse things up and say, well, the day to day management, which shouldn't have a huge impact, you would think you can have, you might try to say, I would like both of those people to have the capacity to act in that regard and maybe on big decisions if it were possible to somehow outline such as a home sale or something like that, that they have to have an agreement to make those types of decisions possibly some route like that might be useful. Naming multiple agents can cause problems if disputes arise between them. For instance, if two children are required to act jointly in managing an investment account, but disagree over how to do so, it may be effectively frozen. So again, this is the kind of if you have multiple children, especially if the multiple children are in different states or something like that, if you require all of them to agree on every decision going forward, especially if these people don't often agree on things, then you might end up in a situation of gridlock. And then it might be better in that kind of situation to try to name somebody that if you have a particular person that you trust that can then facilitate the distribution of the assets in accordance of your best wishes. Obviously, you're never going to make everyone happy. So you got to basically try to try to weigh the pros and cons of those two outcomes. So when choosing two children to act jointly as agents under a POA, be sure they have not only the skills, but the task for the task, but personalities to cooperate. So again, you've got to think, okay, if I have two or more people that are kind of managing the same thing, and they both have to agree on what's going to happen. Is that going to be beneficial overall? Or is that going to be more problematic overall and moving forward? So risk of naming children as power of attorney, mistakes, and worse, acts of self-dealing committed by your agent can be extremely costly. This is especially so with a durable POA that gives broad control over your affairs during a time when you are incapacitated. You must be convinced that the agent will follow your instructions, can do so, and will pursue your wishes even over the objections of other family members. So it can be difficult, especially if you're talking like a death kind of situation. Family members might want to come in and say that I would like to get distributions of this and that before you take care of the liabilities. And typically at that point in time, again, what you generally want to do is try to liquidate kind of like you were doing with a business. You want to pay off the liabilities. You might have to liquidate some assets to do that. And distribute all of the assets in accordance to the wishes of the person who is deceased or the person or the principal. And that might not be something that all the people involved agree with. So it could be a difficult situation. Never name a child to be your agent as a matter of fairness to avoid hurt feelings or preserve family harmony. And again, this is probably a common kind of theme where people say they just take the easy route most likely and say, well, I'll just have everybody has to agree on every agreement, even though nobody agrees on anything. We already know that and they're all and everybody's in different places of the country. That's probably not the best way to go because clearly you're going to end up with a long term kind of gridlock situation. It might be easier to say, hey, look, it's not going to people aren't going to be happy, but I'm going to name somebody who I think is capable of carrying out my wishes. And I'm going to try to lay out my wishes in a way that is fair. And hopefully they can do that in a most transparent way that might cause less actual havoc, even though it might not be the most agreement that the people and no one's going to be happy of all the things right. So this is especially true if you lack trust. The powers are far too important to be granted to other than on the merits of trustworthiness and ability. So beware of naming a child as your agent if so you experience difficulty, awkwardness or resistance when explaining to the child the duties to be taken on as your agent under the POA. The child may not be available to perform the duties or not be reliable in doing so due to their concerns or distractions. The child has a history of problems with gambling or substance abuse. The child has serious debts or has been irresponsible in managing their affairs. The child is engaged in intra family conflicts that may result in using the powers received under the POA to favor some family members or others. So if there's kind of disputes and you got to take all that into consideration, say, what are you going to do? What's the best thing? General risk and naming a power of attorney. Be aware of the dangers of theft and self dealing created by a POA even when your agent is your child. So you would think it's a family member. They're not going to be pure as a driven snow. Okay, maybe not. To minimize the risk of such wrongdoing, in addition to the steps mentioned above, have your POA require your agent to report all actions periodically to an outside party such as the family's accountant or attorney. In other words, trust but verify. A capable attorney can draft your POA to include these safeguards under your state's laws. As family circumstances change, periodically review and update the POAs you have created. You can revoke a POA simply by writing a letter that indicates it and states that you revoke it and delivering the letter to your former agent. So just like the document itself, some states require such a letter to be notarized. It's a good idea to also send copies to third parties with whom the agent may have acted on your behalf. Then create a new POA and deliver it to your to your new choice of agent. A power of attorney can provide you with both convenience and protection by giving a trusted individual the legal authority to act on your behalf and in your interests. Adult children who are both fully trustworthy and capable of accomplishing your wishes may make the best agent under your POA, but don't name a person the agent simply because they are your child. Be sure your agent is trustworthy and capable as a first requirement, whoever you name. Getting your parents to create a power of attorney. There may be a time when you may become incapacitated and can't manage your own affairs. If you don't have a POA in place that enables a named agent to step in and do so, nobody may have the legal right to do so. For instance, nobody may have the right to take individual retirement account, IRA distributions, the parent needs for income to borrow funds to pay medical bills or deal with the Internal Revenue Service IRS concerning parents' taxes. It then will be necessary to go to court to seek to be named as a conservator or guardian for the parent, a course that may prove costly and slow. And it could be contested leading to family conflicts. You may choose to name one or more of your children as POAs. There are many different kinds of POAs and you can have more than one. While a general POA enables the agent to act with the authority of the POAs creator in all matters, a special POA can limit that authority to a specific subject such as managing an individual's account or to a limited period such as while the creator of the POA is traveling abroad. Here are some things to consider. Start small. A special POA can be used only to provide a convenience that you will value as a parent such as one that enables your children to prepare and file your tax return and manage your dealings with the IRS. Safeguards. If you're concerned about how your affairs will be handled, make sure the POA requires that the agent periodically report all actions taken to a trusted third party whom family members agree upon such as the family's lawyer or accountant. Or you can name two agents and require they agree on major transactions such as the sale of a home. Consult trusted advisors. Trusted professional advisors such as lawyers, accountants and doctors can help you understand the wisdom and necessity of adopting POAs. These documents can be valuable for you and the rest of your family. So if you aren't comfortable granting broad powers at once, you can do so gradually, but don't delay or they may be costly consequences since the grantor must be mentally competent to create a power of attorney. If you lose the capability of managing your affairs, it's too late. At that point, court proceedings may be required. What does having a power of attorney do? A power of attorney is a legal status granted to somebody that allows them to act on your behalf. The person given POA may have either broad or narrow legal authority depending on how it is spelled out in the POA document to make legal decisions about one's property, finances or medical directives. Can somebody with a POA power of attorney do anything they please? No. The scope of legal authority granted by a POA is laid out when it is established. Furthermore, the person that is granted power of attorney has a legal fiduciary duty to make decisions that are in the best interest of the person for whom they are representing. Can next of kin override a power of attorney? No. Next of kin or other family members do not have any legal authority to override or nullify an existing POA power of attorney. How can I revoke a power of attorney I have given to somebody? A power of attorney can be terminated if you expressly revoke it. It may also have a set termination date or duration of time for which it is enforced. If you become mentally incapacitated, it will also cease unless it is a durable power of attorney. If you die, all powers of attorney are cease. Once again, if you die, all powers of attorneys cease. So who can I name to have power of attorney? You can technically name anybody to have power of attorney POA so long as it is done under your free will and you are mentally competent. So it should be somebody trustworthy and capable such as a spouse, close family member or friend. You may also designate your lawyer to have POA. You can in theory name more than one individual to have POA but this is not recommended as it can create conflicts and confusion. What's the bottom line? Creating a power of attorney and specifying how it will operate even if you lose your ability to think or function ensures that you will have a plan in place for overseeing your financial affairs and health directives if and when you are unable to do so. Be sure to choose somebody you trust and who will be able to faithfully carry out their responsibilities on your behalf.