A power of attorney (POA) is an important planning tool. There are different types, and it’s a good idea to understand the differences before drawing one up. A financial POA can be useful for financial matters large or small. The person authorizing the POA controls how much authority the POA has and for how long. Here’s what you need to know.
What Is a Financial Power of Attorney?
A financial POA is a legal document by which you can assign another person the authority to handle some or all of your financial concerns. That person is referred to as the POA or the agent, while the person assigning the authority is the principal.
There are two different times in a person’s life when a financial POA can be valuable. One is while the principal is still in full mental capacity, but needs assistance with financial or business dealings. One example would be a real estate transaction that takes place in a state other than the one the principal resides in. They could name a POA in that state who could oversee and sign paperwork conducting the sale or purchase of real estate in the principal’s absence.
Another situation in which a financial POA is valuable is if the principal suddenly becomes incapacitated. They would have to have set up the POA before becoming incapacitated, but if it’s drawn up ahead of time and ready to go, the agent can step in quickly and take care of the financial concerns for the principal when they’re not able to. That might involve paying bills, collecting government benefits, and watching over investments, among other tasks.
What Kinds of Financial POAs Are Available in California?
There are three types of financial POAs that can be used in California.
- General POA. A general POA gives the agent authority to make the same types of financial decisions the principal can. One exception to that is the agent cannot give themselves money or property that belongs to the principal. It’s a good one to use when you need to have someone able to manage all of your financial affairs. However, unless specified in the POA, the general POA no longer exists if the principal becomes incapacitated. For that, the POA must also be a durable POA (see below).
- Limited POA. This is a good type of POA to use if you have only certain situations you want the agent to handle, such as the out-of-state real estate transaction given as an example above. A limited POA allows the principal to very narrowly grant authority to the agent. As with the general POA, a limited POA stops existing if the principal becomes incapacitated, unless it’s designed as a durable POA.
- Durable POA. When either the general or limited POA is drawn up with terms specifying that it’s durable, it continues to exist and award authority to the agent if the principal is incapacitated. Without specific legal language, the POA is not durable.
Understand that no matter the type of POA, once the principal dies, the agent loses all authority. Sometimes people believe that a durable POA acts like a will or trust, but it does not. Having a POA but no will or trust means the estate will go through probate, and the courts will determine how assets are distributed.
Do I Need an Attorney to Draw up a POA?
Technically, it’s possible to draw up a POA on your own. However, if it doesn’t strictly align with legal guidelines, someone could challenge it in court and potentially have the agent removed. California requires specific language to make a POA durable. It’s advisable to work with an experienced POA attorney to ensure your specific needs are met and your wishes will be honored.
How Do I Get a Financial POA in California?
First you need to identify what you need your financial POA for and how broad the powers given to the agent should be. Discussing this with an attorney can help clarify what those needs are and the best way to make sure they’re filled.
An attorney can also guide you through the process of determining how best to choose an agent to represent you. This is a serious consideration. If the agent isn’t someone you can fully trust to follow your wishes, and you provide them with durable powers, you could become temporarily incapacitated and have your estate taken advantage of.
Once the document is drawn up and approved by the principal, the principal must either sign it themselves or ask someone else to do it while the principal watches. Then the document must either be notarized or signed by at least two adult witnesses. Note that the named agent cannot be a witness or sign for the principal.
Can I Change My POA?
Yes. If you’re not incapacitated, you can revoke the POA or change the agent or terms of the POA at any time, as long as you still follow the requirements for signatures and witnesses.
What Should I Do if I Need Help Setting Up a Financial Power of Attorney?
Call Cava & Faulkner at 916-685-1225 for a free consultation. Our knowledgeable, experienced estate planning attorneys can guide you through the process and help you determine the best way to protect your interests, whether it’s a quick, one-time business transaction or more comprehensive protection of your finances in case of your incapacitation. We can also advise you on selecting the person to be your POA.