A financial power of attorney (POA) can be a useful estate planning tool for almost all adults. Yet, many who would benefit from this document avoid creating one.
If you do not have a POA in place, you might consider asking yourself why you don’t. There are a variety of popular misconceptions that prevent people from benefiting from this legal document. Dispelling these myths can help you better evaluate your situation and see if a POA would be useful to you.
Myth 1: My agent can do whatever they want with my money.
A POA document allows you to name an alternate decision-maker for your financial matters. However, many people believe that by signing a POA, they are giving this alternate decision-maker, called an agent, the power to do whatever he or she wants to do. This is not the case.
Your agent must always act with your best interests in mind. However, you can also limit the power you want to give your agent. You might only authorize your agent to manage your business affairs or only help you manage your personal finances. Alternatively, you might choose to give your agent the ability to act for you in all your financial matters.
However, there are several actions your agent will not be able to take, unless you specifically grant him or her the power to do so. These actions include:
- Giving away your property
- Creating or altering a trust
- Changing the rights of survivorship
- Changing beneficiary designations
- Allowing others to act as your alternate decision-maker in their stead
- Waiving your right to be a beneficiary of a joint and survivor annuity
Myth 2: A POA will take away my abilities to manage my own money.
Although a POA grants someone else the ability to act as an alternate decision-maker for your financial matters, it does not take away your right to make your own financial decisions. It actually helps prevent the need for more restrictive measures, like a guardianship.
A guardianship would involve a court declaring you incompetent, which would prevent you from being able to make certain choices for yourself. It would also involve appointing a guardian for you and/or your estate.
Myth 3: I can wait to create a POA until I really need it.
The future is never certain. An unexpected accident could render you incapacitated at any point, and if a POA isn’t already in place, your loved ones may need to seek guardianship before they can manage your affairs.
Additionally, you must be legally competent to sign a POA, as you must be to sign most legal documents. If you wait too long, your competence could be challenged, and your preferred agent may not be the person a court chooses to serve as your guardian.
Fortunately, you can create a POA now and have it spring into effect at a certain time in the future. Alternatively, you can take the time to train your agent to manage your affairs the way you want them to be managed.
By taking the time to complete certain tasks together, you can also smooth out any unanticipated problems that come up. For example, if your bank refuses to recognize your POA, you still have time to submit any additional paperwork they may need to accept your agent’s actions as your own.
Estate planning myths are believable because they are so prevalent in our society. However, they are still myths. Although a POA may not be the best choice for everyone, it can be a useful tool that shouldn’t be overlooked because of popular misconceptions.