Understanding Financial (General/Durable) Power of Attorney
A power of attorney allows a person you appoint — your “attorney-in-fact” or agent — to act in your place for financial or other purposes when and if you ever become incapacitated or if you can’t act on your own behalf. There are four main types of powers of attorney.
General Power of Attorney. In this situation, the agent can perform almost any act as the principal, such as opening financial accounts and managing personal finances. A general power of attorney arrangement is terminated when the principal becomes incapacitated, revokes the power of attorney or passes away.
Durable Power of Attorney. This arrangement designates another person to act on the principal’s behalf and includes a durable clause that maintains the power of attorney after the principal becomes incapacitated. This type of POA will revoke when the principal passes away.
Special or Limited Power of Attorney. In this instance, the agent has specific powers limited to a certain area. An example is a power of attorney that grants the agent authority to sell a home or other piece of real estate.
Springing Durable Power of Attorney. In some states, a “springing” power of attorney is available and becomes effective when a specified event occurs such as when the principal becomes incapacitated.
In order for the Power to become effective, the principal’s doctors must verify in writing that the principal is incapacitated. It is very important you understand what happens if the physicians won’t sign off on the incapacity.
It’s helpful to have these conversations in happy times, when your loved one is well so you can determine their wishes for their financial security and healthcare should a time come when they are unable to make the choices for themselves.
Responsibilities of the Agent within your Durable POA
- use your assets to pay your everyday expenses and those of your family
- buy, sell, maintain, pay taxes on, and mortgage real estate and other property
- collect Social Security, Medicare, or other government benefits
- invest your money in stocks, bonds, and mutual funds
- handle transactions with banks and other financial institutions
- buy and sell insurance policies and annuities for you
- file and pay your taxes
- operate your small business
- claim property you inherit or are otherwise entitled to
- transfer property to a trust you’ve already created
- hire someone to represent you in court, and
- manage your retirement accounts.