We talk with a lawyer about this important legal document
What Is a Power of Attorney and Do You Need One?
by Gary Foreman
Understanding when to Use a Power of Attorney
Taking Over Your Parents' Finances
Trust Basics for Retirees
It happens every day. Your husband or wife is incapacitated. You need their signature on an important financial or medical document. That's when a legal document called a power of attorney comes in.
Recently, some institutions are refusing to accept a valid power of attorney. To help us understand what a power of attorney is and how to avoid problems using it, we spoke with Tom Batterman. Mr. Batterman is a lawyer and Certified Trust and Financial Advisor. He founded and heads Financial Fiduciaries LLC in Wausau, Wisconsin.
Q: What exactly is a power of attorney?
Mr. Batterman: It is a document that grants another person the right to act on your behalf.
Q: Why would anyone, but especially baby boomers and seniors, want to have a power of attorney?
Mr. Batterman: There are many reasons one could need a power of attorney. For example, you need to sign a deed and you are not going to be available on the day the closing is going to occur. However, the most common reason you should have a power of attorney is to put someone of your choosing in a position to make decisions for you if you should be incapable of doing so. If you don't have a power of attorney and someone has to make decisions for you, you have to go through the legal process of having a legal guardian appointed for you, which is time consuming and unnecessarily expensive.
Q: Are there things that a power of attorney cannot authorize?
Mr. Batterman: That is a broad question. I would suppose you cannot grant someone a power of attorney to do something illegal. Within the realm of legal activity, powers of attorney can be very limited (such as sign a deed on such and such a date for such and such a transaction) or very broad (basically anything you yourself could do) or anywhere in between. It just depends upon what power you want to give the person to act on your behalf.
Q: There are two kinds of power of attorney documents. What are they? And how do they differ?
Mr. Batterman: They concern health care and financial. The Health Care power of attorney grants someone the power to make decisions for you with regard to health care matters. These can be very narrow or very broad. The financial power of attorney grants someone the power to act on your behalf with respect to financial matters over which you want to allow them that authority.
Get the most for your money.
Compare CD rates now.
Q: In a recent article, you point out that some banks and other institutions are refusing to accept a power of attorney. Why is that and what can the holder of the power do in that case?
Mr. Batterman: Some financial institutions have required that the financial power of attorney be executed within a certain period of time from the time you are seeking to use it. To me, that kind of defeats the purpose of doing that planning. The power of attorney can be revoked at any time and a financial institution is released from liability for acting based upon a valid power of attorney of which they have no notice of revocation. The only thing you can do in that situation is argue with the institution to accept the existing document based upon this rationale or prepare a "fresh" power of attorney that restates the original one but within the necessary time frame. Otherwise, the attorney in fact will not be able to act and you can either not do what you are wanting to do or you need to go to court to get a guardian appointed to do what needs to be done.
Calculator: How much life insurance do I need?
Q: What steps, if any, can be taken to prevent this type of problem?
Mr. Batterman: You can periodically refresh your power of attorney documents. I really have a hard time advising people to do this because having a power of attorney available in the future if you are incapacitated is a basic and important use of the instrument. I think the issue lies more with third party reliance than the document itself. The best solution is to get third parties to rely upon them.
Reviewed April 2017
Tom Batterman is founder of Vigil Trust & Financial Advocacy and Financial Fiduciaries LLC. Having provided objective, fee-only financial management services for over two decades, he specializes in managing the investment and related financial affairs of individuals and mutual insurance companies who do not have the time, interest, or expertise to manage such matters on their own.
Gary Foreman is a former financial planner and purchasing manager who founded The Dollar Stretcher.com website and newsletters in 1996. He's been featured in MSN Money, Yahoo Finance, Fox Business, The Nightly Business Report, US News Money, Credit.com and CreditCards.com. Gary shares his philosophy of money here. You can follow Gary on Twitter. Gary is also available for audio, video or print interviews. For more info see his media page.
Take the Next Step:
- Determine if debt could derail your retirement and what you can do about it now. Our checklist can help you. Afterall, one of the most important ingredients for a comfortable retirement is to be debt free when you retire.
- Find information geared specifically for Baby Boomers in The Dollar Stretcher section dedicated to your financial issues. If you're over 50 your financial needs are different. And so are your questions.
- Subscribe to After 50 Finances. You've learned how to work smarter, not harder. This weekly newsletter is dedicated to people just like you. Subscribers get a FREE copy of our After 50 Finances Pre-Retirement Checklist, a list of everything you need to do to be ready for retirement.
Share your thoughts about this article with the editor.