Things to Consider When Drafting Your Financial Power of Attorney

Feb 19

A Financial Power of Attorney (FPOA) is a crucial legal document that authorizes someone else to make financial decisions on your behalf. This can include paying your bills, filing tax returns, or accessing your bank and retirement accounts. Properly drafting this document ensures that your financial matters are handled according to your wishes if you become unable to manage them yourself. Here are some key points to consider:

Who Should You Choose To Be Your Agent?

Typically, married couples name their spouse as their primary agent, and if they have adult children, they often name them as backup agents. Some clients elect to use co-agents, which act like two primary agents working together. Backup agents take over in case that the primary agent is unable to exercise the power of attorney. If you’re not married or don’t have adult children, you can appoint a trusted parent, sibling, adult niece or nephew, or another close family member. It’s crucial to select someone that you trust completely, as they will have significant control over your financial affairs.

Updating Your Agent

It is also important to know that your choice of agent is not permanent. Relationships, life, and circumstances change. The person you choose now may not be a good fit in the future - and that is ok. As long as you remain competent, you may change your trust and update your power of attorney at any time. This includes replacing your agent entirely, naming a successor agent, or adding a co-agent if you prefer two people to share the responsibility. It is always a good idea to revise these documents after large life changes such as divorce, the death of an agent, or a significant shift in your family.

Effective Immediately or Springing Power?

You have two options when drafting your Financial Power of Attorney:

Effective Immediately: Once signed, the document is active, and your agent can exercise all powers specified in the document. This approach is common for married couples or trusted adult children. One of the greatest benefits of this is a quick and seamless transition, which makes the process easier for the agent during difficult times.
Springing Power of Attorney: This version only becomes effective if you are deemed incapacitated. In most cases, a doctor’s certification of your incapacity is required before your agent can act on your behalf. This option provides an added safeguard to protect your financial accounts from unauthorized access.

When should I consider a Springing Power of Attorney?

In practice, most FPOAs are effective immediately, because most clients want the structure in place to avoid dealing with administrative hurdles during difficult times. However, if you are appointing someone who is not a spouse or an adult child, you may want to consider a springing power. This provides a layer of protection, ensuring that your financial accounts and assets are safeguarded until you are medically certified as incapacitated. This is especially useful if you are entrusting your finances to someone outside of your immediate family.

Appointing Co-Agents

IIf you prefer to appoint more than one person simultaneously as your financial power of attorney, they are known as co-agents. When naming co-agents, you must specify whether:

They must act jointly, meaning they must make all decisions together.
They can act independently, allowing either agent to make decisions without the other’s approval.

This distinction is critical for dealing with banks and other third parties. If not clearly specified, institutions may impose restrictions, creating unnecessary complications and delays. This defeats the purpose of the document, which is to allow someone to step in and act on your behalf without obstacles.

Common Mistakes When Drafting Your Financial Power of Attorney

Many people believe that naming a Financial Power of Attorney is based on their relationship alone with the individual. It is important to choose someone you trust to ensure your financial matters are handled in accordance with your wishes. Consider these factors when looking deciding who to name:

Availability - Is the person you name willing and available to take on your own financial responsibility, and are they practically able to serve when the time comes?
Geography - Where the person lives may impact their ability to handle time-sensitive financial matters on your behalf.
Back-up Agent - Life can be unpredictable, and sometimes these documents do not get updated as frequently as we hope. Having a backup agent in the event that the primary Financial Power of Attorney is unable to serve is another layer of protection to your own wishes.
Co-Agents Who Do Not Get Along - Consider the relationship between your co-agents and whether they are able to communicate and make decisions that best suit your interests. Make sure to specify whether they can act independently or if they must act jointly. Disagreements between co-agents can delay critical financial decisions at the wrong time and create unnecessary tension under pressure.
Assuming Marriage Equals Authority - Many people are surprised to learn that a spouse does not automatically have the right to manage their partner's finances. Without a financial power of attorney, even a spouse may need court intervention to act on your behalf.

A Financial Power of Attorney is an essential component of your estate planning. By thoughtfully considering who to appoint, how the powers are activated, and whether to name co-agents, you can ensure your financial affairs are managed smoothly and according to your wishes. For personalized advice tailored to your situation, consider consulting an estate planning attorney to draft a Financial Power of Attorney that best suits your needs.

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