Power of Attorney
Article by R. Joseph Ritter, Jr. CFP® EA
As with a Will, documents such as a Health Care Directive (Health Care Surrogate), Power of Attorney and Living Will express in writing your intentions concerning your care and financial matters should you be unable to speak for yourself. Examples include a car accident when you are taken to the hospital, heart attack, stroke, or other emergency medical situation, severe brain injury, or other serious medical event that is not anticipated.
The Power of Attorney is an important document which appoints a person to manage your financial affairs if you are unable to do so. At 39 years old, I woke up at 5am one day with severe abdominal pain. I thought it was from bloating, gas or some other intestinal issue. I pushed through the pain to get the kids ready to go to school and drove to work. By 9am the pain was no different, and I couldn’t concentrate at work. I finally decided to go to the hospital, and wound up having surgery the next day and spending a total of 5 days in the hospital. I had bank transfers that needed to be made and bills to pay which I was going to do that evening. If your bank accounts are joint with your spouse or someone else, handling these matters can continue without interruption. However, if you do not have joint accounts, the bank is not going to take instruction or provide information to your close friend, aunt, or significant other unless you have given the bank written instructions or have a Power of Attorney authorizing the person to act for you.
There are two types of Powers of Attorney. One is immediate and the other is springing. The only difference is when the document becomes effective to authorize your representative to act on your behalf. They can either act immediately or upon your incapacity (springing), whichever the Power of Attorney (or state law) authorizes.
The purpose of the Power of Attorney is to ensure that your financial and other (non-medical) affairs can continue to be managed if you are unable for any reason to do so. The authority in the Power of Attorney ceases at your death, even though some people may think it continues into perpetuity. The Will takes over at that point.
The Power of Attorney is useful in situations other than incapacity too. Truck drivers, military personnel, and people who travel frequently on business can use the Power of Attorney to ensure that important financial, investment and asset management matters continue to be addressed in their absence.
Because all of these documents grant a great deal of authority and responsibility upon your representative, it is important to carefully think through who you may want to appoint. It should certainly be someone you trust, someone who would tend to your affairs without objection, and someone who has the time and ability to respond to an emergency situation.
A Power of Attorney is important for spouses, parents with adult children and other situations involving blood relatives and family relationships, so that financial decisions can be made without interruption. However, the Power of Attorney is even more important in homosexual relationships, unions with a partner and cohabitation relationships. The reason is that banks and financial institutions will look first to blood relatives and family members for decisions to be made. A close friend or partner would often be excluded, leaving important decisions and information in the hands of family members who may not wish to speak with your partner. A Power of Attorney that appoints your partner ensures he or she has the authority to make decisions on financial matters and receive your financial information.
As with the Will, the cost to have these documents prepared by attorney is quite insignificant compared to the peace of mind, family harmony and avoidance of unwanted expense or court intervention you may receive in return.