A financial power of attorney can be a very beneficial component of an estate plan. However, it is important to be aware of some problems other people have experienced with their power of attorney documents, so you can avoid those common problems.
Act early
One problem people often have is that they try to wait until they can no longer manage their finances on their own before they designate an agent in a power of attorney. However, this can be problematic because life is unpredictable. You may never expect to be suddenly incapacitated and if that happens, it is already too late to create a power of attorney.
Even if you are not unexpectedly incapacitated, you need to be of sound mind when you create this legal document. If you wait too long, you may lose the ability to make a power of attorney, and your loved ones may be forced to seek guardianship, which may be more restrictive than a power of attorney.
To avoid these problems, consider creating a financial power of attorney before you really need one. This has the added benefit of allowing you the opportunity to oversee the actions of your agent and help him or her understand how you would like certain tasks completed. You will also be available to help resolve any potential problems that may come up.
Choose an agent you trust
Your agent is the person you choose to act on your behalf. Because you are giving this person the ability to access your financial accounts, manage real estate, pay your expenses, sell your assets and take other financial actions, it is incredibly important to choose someone you trust.
Sometimes when people have chosen their agent for the wrong reasons, the agent ends up mismanaging the assets. This can be done either for personal gain or because the agent lacks the skills to properly manage the assets.
To avoid situations like this, choose someone you trust who has the necessary skills and is located close enough to be available when needed. While you may consider how your choice may affect family dynamics, you should not choose someone because of family status or because you are afraid to offend someone. Although family members or close friends are often chosen, keep in mind that you can also hire a professional to fill this role.
Verify your financial institution’s requirements
Sometimes an agent may encounter problems when he or she tries to act on your behalf. Financial institutions, in particular, may have special requirements that can vary from bank to bank.
To avoid any potential problems, visit each of your financial institutions and inquire about their specific requirements for accepting a power of attorney. Then, try to meet those requirements before you need your agent to begin taking over your finances. Sometimes it can be easier for your agent if you also consolidate your accounts, so your agent will have fewer accounts to manage.
Many people create successful power of attorney documents every year. To help ensure you have a successful experience, consider some of the challenges others have faced and work with your attorney to find the best ways you can avoid those common problems.
