What are Powers of Attorney and Do You Need Them?

andrew • November 13, 2022

Very few people go from being perfectly healthy to passing away. In reality, there is often a period of declining cognitive abilities and physical condition that require special attention to properly prepare for. One of the most common situations concerns when an elderly individual begins to suffer the early symptoms of dementia. Who will be there to step in to handle financial responsibilities such as paying taxes and bills, or make sure that accounts are not drained from fraudulent purchases? Obviously, if the individual is married and shares joint accounts, then their spouse can manage those situations without any special authority. Absent additional authority, however, the spouse cannot manage property owned solely by the other spouse with declining cognitive abilities. They also cannot sell jointly owned real estate on behalf of the other spouse if they are truly incapacitated.

To perform these actions, a financial or general durable power of attorney is needed. This document can greatly facilitate financial management in end-of-life situations where an individual is rapidly losing their mental faculties and physical health by allowing a designated individual to make payments, deposits, transfers, etc. from your accounts. This may seem like an awful lot of trust to put in another person, but they have a fiduciary obligation to you to act in your best interests. To this end, an agent acting as financial power of attorney should never commingle funds from the individual’s accounts with their own.
One of the most important questions concerning the appointment of a financial power of attorney (aside from who is to act as agent) concerns when the power of attorney goes into effect. Individuals have the option of having the power of attorney taking immediate effect, or only upon a determination of their incapacity, with such a determination being made by a written declaration signed by an independent physician.

There are benefits and risks to both options. Putting the power of attorney into immediate effect would allow your designated agent to access your accounts, and to the extent they have bad intentions, could allow them to perform damaging transactions that you may not be able to recover at a later date. They would be violating their fiduciary duty by performing those transactions, but oftentimes it can be difficult to make a person or account whole after the damage has already been done.
On the other hand, allowing the power to take effect immediately will allow that individual to step in if there are any short-term incapacity situations (such as if they are missing, unconscious for surgery, or otherwise indisposed) and avoid the sometimes difficult evaluations and medical conclusions that have to be made in the early stages of dementia and other degradation of mental faculties. What you may think represents an incapacity to manage one’s financial affairs may not match what a doctor thinks.

A financial power of attorney is fully amendable and revocable and can be changed at any time, so you are not bound to your choice. If you are interested in setting up or updating your financial power of attorney please reach out to our office to discuss your options.

what next?

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