Navigating Your Later Years For Dummies
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If you need to step in to help take care of an older person’s finances while planning their long-term care, an alternative to holding a joint bank account is receiving financial power of attorney. Two types of power attorney are available: conventional and durable.

Conventional power of attorney

Conventional power of attorney is granted by a document, signed by one person, giving another person permission to take care of different kinds of financial affairs, like signing checks, agreeing to pay a contractor for home repairs, handling bank accounts, and taking care of other tasks.

The power of attorney may be limited to specific tasks, such as paying monthly bills, or it may be general and all encompassing (allowing everything including selling property and assets like stocks, filing taxes, or managing a retirement account).

Depending on state laws, some powers cannot be assigned to another person. Those include the power to make, amend, or revoke a will; change insurance beneficiaries or vote.

The person signing the document is known as the principal, and the person who is designated to act in the principal's name is called the agent or attorney-in-fact. Typically, a power of attorney goes into effect right away, but the principal can set it to expire on a certain date, and the principal can revoke the power of attorney at any time.

Furthermore, conventional power of attorney ends if the principal becomes legally incapacitated, which means he or she is unable to understand and make decisions.

If you are the agent, be sure you sign a check, for example, as John Brown (your name), attorney-in-fact for Mary Brown (your mother) to avoid personal liability.

Durable power of attorney

Because a conventional power of attorney ends when the principal (the person who signed away some powers) becomes legally incompetent, many people choose what is known as a durable power of attorney, which continues even if the person becomes incapacitated.

Therefore, durable power of attorney lets the agent remain in control of certain financial and legal matters even if the principal is no longer able to understand the decision to be made or its implications. For example, a person with advanced dementia would be considered incapacitated, as would a someone in a coma. All states recognize some form of durable power of attorney, but the specifics vary.

Another version of durable power of attorney is called a springing durable power of attorney. It sets conditions under which the durable power of attorney goes into effect; for example, when a doctor certifies that the person has become incapacitated. The springing durable power of attorney may be more acceptable to an older person and avoids the lengthy, costly, and emotionally difficult process of guardianship.

However, the document must be very clear about what counts as the springing event so that the principal, agent, and other third parties who need to rely on the power of attorney can easily determine when the principal intended the agent to take over. Without clarity, a court may have to decide.

This would negate one of the benefits of having a power of attorney, which is that financial and legal matters can be handled without going to court.

Even if you have a durable power of attorney in a form approved by your state, your bank or other financial institution may require its own form. Even the Social Security Administration requires its own version of a power of attorney. Be sure to ask your bank whether it honors the standard form or requires its own.

Just as in joint bank accounts, as the agent in a durable power of attorney, you are required to act in the person's best interests, maintain accurate records, and avoid any conflict of interest. Most people are not well versed in the fiduciary responsibilities that accompany being named an agent in a durable power of attorney.

The same temptations that can occur in a joint bank account are present with a durable power of attorney, and here the stakes may be even higher. Therefore all financial actions taken on behalf of the person who is incapacitated must be transparent, and all family members involved in the care of the older person be apprised of significant outlays.

There may be disagreements, but better to have them resolved early rather than cascade into serious trouble.

A durable power of attorney for financial affairs does not include making healthcare decisions. That requires a separate document, which can be called by different names but is usually termed a healthcare proxy or a durable power of attorney for healthcare.

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