A financial power of attorney is used to appoint agents who can act for you in a legal or financial capacity and what kind of powers they will have. The agents that you appoint are fiduciaries, meaning they have duties to you as the principal (the person who signed the document) to act in good faith, not to co-mingle their assets with your assets, to act in your best interest, etc. This is a powerful document, so you should make sure to only appoint those you trust and will make good decisions for your benefit. Your agent can be a family member, a trusted friend, or a professional.
A financial power of attorney is a living document, meaning it is used during one’s lifetime. This document dies with you and is no longer effective when you die. Your agent will not be able to use this document after your death, which is why it is important to have a will as well.
Having a financial power of attorney can help you prevent a guardianship if you ever become incapacitated. In most cases there is no legal next of kin for legal and financial transactions. If you get sick without a power of attorney and there is no one designated to do these things for you, your friends and family may be in a bind when it comes to paying your bills, running your business, or dealing with companies and the government. Your family may be forced into a guardianship, a court procedure where you get severed from your own rights and the court appoints someone someone to manage your assets. Guardianships are court controlled, which means that most actions that your guardian makes must get court approval before they are done. Guardianships are costly and time consuming. A guardian is also required to report to the court at least once a year while it is ongoing. Every time your guardian needs to ask the court for permission to do something or report to the court, will require more attorney’s fees that come with
There are several types of power of attorneys:
1) General power of attorney – gives the agent the authority to act in a broad range of matters. A general power of attorney ends if the principal becomes mentally or physically disabled or incapacitated.
2) Limited or special power of attorney – a limited or special power of attorney gives the agent the authority to handle a specific matter, or for a limited period of time.
3) Durable power of attorney – this is a general power of attorney, but continues if the principal becomes mentally or physically disabled or incapacitated.
4) Springing power of attorney – gives the agent authority only if and when the principal becomes disabled or incapacitated. The incapacity must be supported by one or two doctor’s letters.
Texas has a statutory form, which is a durable type of power of attorney. It covers all kinds of transactions, such as real estate, banking, tax matters, litigation, and operating business, just to name a few. There are a lot of forms on the internet that purport to be a one size fits all power of attorney. For most however, they do not know what they are signing. Make sure to have an estate planning attorney prepare a financial power of attorney for you, so you know that it is working for you and not against you.