A Financial Power of Attorney (POA) is a legal documents that give someone else–your attorney-in-fact–the power to act for you. (A Health Care Power of Attorney is different; stay tuned!) POAs seem simple, but while they are not especially complicated tools, they’re more than a “sign here” form.
Option 1: Is your POA durable? A durable POA lets your attorney-in-fact act even if you suffer from a lack of mental capacity. The law defaults to “the power ends if the principal lacks mental capacity,” so if you are giving someone a POA so he or she can act if you have a stroke, dementia, etc., you’ll most likely want it to be durable.
Option 2: Does your POA spring? Generally, a POA is effective when it’s signed. Often, however, you only intend to grant the power to act if you can’t, i.e., when you lack capacity. If this expectation applies, you want the POA to spring into effect when, and only when, you lack mental capacity.
For estate planning purposes, I usually prepare a durable, springing POA. The attorney-in-fact acts on the principal’s behalf if and only if the principal lacks mental capacity. I also see POAs used for particular purposes, most often when someone will be away and must sign documents for a transaction. Here, the POA will not spring, it may not be durable (maybe the transaction should not go forward if the principal loses mental capacity), and the POA contains language that limits the authority to signing documents for the particular purpose.
Many people use a POA to assist an elderly parent who may be suffering from dementia. The law permits this application, but the courts do not supervise POAs, and the attorney-in-fact only accounts for his or her actions if someone files an action in court. Thus, if you are giving a POA, be sure you’re giving it to the right person. If you’re using a POA on someone’s behalf, don’t use it to benefit yourself, keep good records, and be prepared to explain yourself. (A common problem? Child/ sibling A uses a POA to help mom. “On the outs” child/sibling B thinks his sister steals from mom, and the sister’s records are lacking.)
A few more things:
1. The principal must have mental capacity when the POA gets signed, so don’t wait around until you need one.
2. Arizona has some particular requirements associated with the content and signing of POAs, and Arizona courts will not enforce non-compliant POAs.
3. A POA never, ever survives the death of the principal, so no showing up at the bank two days after mom passed, using her POA to get the money!