Most states allow some type of durable power of attorney, or DPA, for finances. There can take two forms: the limited power, designed for particular purposes, or the general power of attorney that applies to any transaction. Some estate planners include these options among their standard offerings; however, the question to ask is whether you actually need one — and, if so, what kind.
The financial power of attorney gives the person you designate as your agent the power to make financial decisions or sign agreements as though you had done it. You probably need a financial DPA if you have an impending health problem that could incapacitate you at some point in time, or if you need someone to act on your behalf to complete a financial transaction because you will be unavailable. In such cases, a financial DPA can be a good idea.
However, many people misunderstand what a power of attorney does — and could, in fact, create the potential for serious personal financial harm. Despite the fact that a power of attorney gives someone else the ability to make financial decisions for you, many people with a financial DPA already in place really don’t want anyone else making their decisions at the time they create it; they keep on making their own decisions, writing their own checks, and choosing what to buy, keep or sell. They get the financial power of attorney “just in case.”
A “springing” financial power of attorney, rather than an ordinary power of attorney, is what most people actually need. This type of power of attorney “springs” into effect only under certain circumstances, such as when a doctor — chosen in advance by the creator of the power of attorney — certifies that a change in medical condition has rendered a person unable to make his or her own financial decisions. Until that time, the creator of the springing power of attorney continues to be the only person entitled to make those decisions. The springing power is designed to protect someone who suffers from a sudden, debilitating illness.
Statistically, strokes and other sudden-onset mentally disabling illnesses are rare. However, a springing financial power of attorney could provide peace of mind, knowing that if such an incident were to occur, important financial decisions affecting you and your family members would be in the hands of someone you trust.
The views of the authors of these articles do not necessarily represent the views of First Republic Bank.