A June 2020 Transamerica Center for Retirement Studies survey showed that a mere 28% of retirees have a financial power of attorney (POA)—and many people don’t understand that there are two types of financial powers of attorney that serve different purposes.
MarketWatch recently published an article “Does your estate plan use the right type of Power of Attorney for you?” that says knowing how both types work is crucial in the pandemic, especially in the event that you get sick with coronavirus.
A Durable Financial Power of Attorney can be either “springing” or “immediate.” “Durable” refers to the fact that this Power of Attorney will endure after you have lost mental or physical capacities, whether temporary or permanent. It lists when the powers would be granted to the person of your choosing and the powers end at your death.
An “immediate” Financial Power of Attorney is effective as soon as you sign the document. In contrast, a “springing” POA means it is only effective when you cannot manage your own financial affairs, usually based upon the written opinion of two physicians.
Therefore, to begin paying your bills, your agent must have written proof of from the physicians, and he or she doesn’t automatically have the authority to ask for them. When issues, such as doctors’ letters, are required before the agent you chose can serve you, ask your estate planning attorney for guidance.
An obstacle that requires a Durable Financial Power of Attorney can come upon you very fast and possibly include you and your spouse at the same time. For example, you may both become ill, or one could become ill and the other is absorbed in caring for their spouse.
The powers granted by a typical Financial POA are often broad and permit selling and buying assets; managing your debt, car and Social Security payments; filing your tax returns; and caring for any assets not named in a trust you may have, such as your IRA.
If you recover your capacity, your agent must turn everything back over to you when you ask.
Remember that your power of attorney documents are only as good as the people who implement them. You should also make certain anyone named knows that they’ll have the job, if needed. They must know where to find your POA and all other important information. If you aren’t sure of the type of POA you currently have, it is worth checking as part of an estate plan update. See our recent article for when it might be time to do that! https://www.galliganmanning.com/when-to-update-your-estate-plan/
Reference: MarketWatch (Oct. 9, 2020) “Does your estate plan use the right type of Power of Attorney for you?”