A power of attorney (POA) is a legal form that allows someone to act on your behalf. The person you name to act on your behalf is called your attorney-in-fact. For instance, I have executed a power of attorney and named my husband as my attorney-in-fact. Now, if for some reason I am unable to transact business for myself, such as banking or filing taxes, my husband can legally represent me to get the job done. Without a power of attorney, no one else can represent me without a legal proceeding and a court appointment. Because most people want to be able to name who they want to represent them, rather than have a judge appoint someone, most people should have an executed power of attorney.
Some powers of attorney are effective immediately and others are springing. As long as the language in the power of attorney is effective immediately, the attorney-in-fact can operate on your behalf immediately after the document is executed. A springing power of attorney, however, only goes into effect after a specified medical condition has occurred, such as incapacitation. Generally, with this type of POA, the attending physician must provide a written medical statement attesting to the incapacity in order for your attorney-in-fact to transact business for you.
As you can imagine there are pros and cons to POAs that are effective immediately and springing. The good news for one effective immediately is it is effective immediately. However, depending on how the attorney-in fact acts, that can be the bad news too! A springing POA provides some restrictions by including specific parameters when it goes into effect, but that can mean there will be hoops to jump through before your attorney-in-fact can start helping you. Think about which you would prefer and discuss this with your estate planning attorney. If you already have a POA, find out which version you have.
- Written by Juli Erhart-Graves, CFP® Worley Erhart-Graves Financial Advisors