According to the U.S. Census Bureau, 10,000 members of the baby-boomer generation reach retirement age each and every day. For many of them who have been planning for retirement, it puts them another step closer to reaching their dream. If you have not already done so, this may be a good time to meet with a lawyer to prepare an estate plan or to review your existing plan.
You want to ensure that an estate plan accomplishes the goal of providing for the management and preservation of assets during your lifetime and its orderly distribution to your heirs upon your death. As you travel and enjoy retirement, the inclusion of a power of attorney as part of an estate plan allows you to appoint someone you trust to handle financial and business matters in your absence. Understanding the types of powers of attorney helps you to maximize their benefits while minimizing the risks that may accompany them.
Estate Planning for Seniors: The Benefits and The Risks of Powers of Attorney
What is a power of attorney?
A power of attorney is a legal document that allows you, as the principal, to appoint an agent to act on your behalf in financial and business transactions. For example, an agent could handle the following matters using a power of attorney:
- Banking transactions, including deposits and withdrawals.
- Real estate transactions, including collecting rents, managing properties, and buying and selling properties.
- Borrowing and lending money.
- Managing investments.
- Managing and operating a business venture.
Powers of attorney are not one-size-fits-all. There are different types of powers of attorney that can be customized to suit your specific requirements. The best way to decide upon the type of power of attorney you need is by consulting with an experienced estate planning attorney.
Choosing the right type of power of attorney
The authority power of attorney gives to an agent to act on your behalf is not something to be taken lightly. Appointing someone as your agent gives that person all of the rights and powers that you possess over financial transactions. It is a powerful legal document that could be misused, so you should not rush to appoint someone unless you have the utmost trust in them to only use it in a way that serves your best interests.
You have the ability to control the authority given to your agent and the conditions under which that authority may be used by the type of power of attorney you select. Each state has its own laws governing powers of attorney, but the following are the most common types:
- A general power of attorney: If you want to give your agent the ability to handle all of your financial affairs from paying your electric bill to running your business or managing your real estate holdings, a general power of attorney grants broad powers with little or no limitations.
- Limited power of attorney: If the thought of giving someone blanket authority to act on your behalf troubles you, you can restrict an agent’s powers with a limited power of attorney. Instead of the broad authority granted by a general power of attorney, a limited power allows you to be specific about the powers granted to your agent.
- A durable power of attorney: The validity of a power of attorney does not survive your death or mental incapacity. However, any power of attorney can be created as a durable one that survives the mental incapacity of the principal. You retain the right to revoke a durable power as long as you are mentally competent when you do.
- Springing power of attorney: If you wish to give someone authority to act only in the event you are incapacitated and unable to handle your own financial affairs, you can opt for a springing power of attorney. The authority you give under a springing power is valid only when and for as long the criteria you include in the document for “incapacitation” are met.
Limiting the risk of abuse of a power of attorney
As previously mentioned, choosing someone you trust to follow your instructions and only act in your best interest goes a long way toward avoiding the risk of the power of attorney being misused. Other steps you can take to avoid problems include:
- Use a limited power of attorney whenever practical and be specific about the authority granted to the agent to make it easier for you to keep track of transactions the person handles.
- If permitted by the laws in your state, place a time limit on the validity of the power of attorney. Although powers of attorney are revocable, including an expiration date in the document prevents its use in the event you forget to revoke it.
- Tell a family member or close friend about the power of attorney and provide them with the name of the agent, so they can look out for improper use of the document by the agent.
Choosing a reputable attorney experienced in estate planning to prepare your power of attorney gives you peace of mind knowing it will conform to the laws of your state and contain the appropriate provisions to protect you against its being misused.