General Power of Attorney
We all age and cannot avoid the natural consequences such as the loss of mental clarity that ultimately come with it. Besides aging, we are also subject to health crises that may leave us unable to handle the business of life such as paying bills, managing investments or making key financial decisions. Assigning someone trustworthy a power of attorney allows that person, as “agent” or “attorney in fact,” to manage your financial affairs if you are unable to do so. Your agent is empowered by law to sign your name and is obligated to be your fiduciary to act in your best financial interest at all times and in accordance with your wishes.
There are different kinds of powers of attorney, but in estate planning there are two essential types you should know. The first is the “springing power of attorney,” which only goes into effect under circumstances that you specify, the most typical being when you become incapacitated. Often that means your agent cannot act until he or she provides doctors’ letters and sometimes court orders to prove you are incapable of making decisions for yourself. The second is the “durable power of attorney.” It is effective immediately, and your agent does not need to prove your incapacity in order to sign your name.
An attorney can help you decide which form makes the best sense for your circumstance. In any case, take care in choosing your agent. That person should be competent, trustworthy, willing to take on the burden of your affairs and financially secure. If you choose a relative or friend as your agent, you probably won’t have to pay them. But if you name a bank, lawyer or other outside party, you will have to negotiate compensation, which can range from hourly fees to a percentage of your assets paid annually. If you do become incapacitated without having assigned power of attorney, the court will step in to appoint a guardian. This process might cost your family well over $1,000, not including the cost of the guardian’s annual court visits to report on your situation. Plus, the person chosen may not be someone you would have picked.