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A Durable Power of Attorney for Finances is one of the tools you can use to control the management of your property and financial affairs if you become incapacitated.

A Durable Power of Attorney for Finances appoints a person (your "Attorney In Fact") to take over your financial affairs. You can decide:

  • When a Durable Power of Attorney takes effect (for example, immediately, or if you become unable to speak for yourself)
  • What powers the Attorney in Fact has
  • When the Power ends

Preparing a Durable Power Of Attorney can be as simple as filling in some blanks on a pre-printed form from a stationary store or online and signing it. However, consider following some or all of the ideas in this document to make sure your Power of Attorney is not challenged and declared to be invalid.

If a lawyer does not prepare your Durable Power of Attorney, it is preferable to at least have a lawyer look it over. For instance, if the power isn't set up as a "durable" power of attorney with wording that meets the requirements of your state's laws, the authority will cease if you become incapacitated.

In order to avoid your Attorney in Fact form being unnecessarily hassled:

  • Don't give an Attorney in Fact more power than necessary. 
  • Whatever power you do give an Attorney in Fact, consider making the power broad. If you want to limit the Attorney in Fact, you can do so in a side agreement between you and the Attorney in Fact that will not be shown to third parties.
  • If you want your Attorney In Fact to be able to deal on your behalf with a bank, stock broker, and/or other financial institution, consider executing the financial institution's printed form in addition to the form you use for other purposes. 
  • NOTE: If you want the person to be able to deal for you with Social Security, appoint him or her as a Representative Payee.

Think carefully about the person to name as your Attorney in Fact. This person basically has a license to steal because he or she will be able to do anything that is included in the power of attorney. One way to help assure honest dealing is to have a duplicate of all financial statements sent to a person you trust (such as your accountant).

Each of these subjects are covered in detail in:

Other alternatives for managing your property if you become unable to manage it yourself are Trusts, Guardianships and legal entities such as Corporation or LLC. These entities are discussed in the articles listed in "To Learn More."

NOTE: When considering documents to cover the "what ifs" also consider Advance Directives for Healthcare and an Advance Directive for Mental Health.

When Does A Durable Power Of Attorney End?

A power of attorney (both durable and non-durable) ends if:

  • You die: Powers of Attorney automatically end when you die. This means that you cannot use a Power of Attorney to designate someone to handle things after your death. If you want your agent to also manage your affairs after your death, you should name that person as Personal Representative/Executor in your Will.
  • You revoke it: As long as you are mentally competent, you can revoke a durable power of attorney at any time. (See How Do I Revoke A Durable Power Of Attorney?.)
  • You get a divorce: In some states, if your agent is your spouse and you get divorced, his or her authority is automatically terminated. These states include Alabama, California, Colorado, Illinois, Indiana, Minnesota, Missouri, Texas, and Wisconsin.
  • A court invalidates your document: A court could declare your document invalid if it concludes that you were not mentally competent when you signed it or that you were under undue influence. See What Is The Best Way To Execute A Durable Power Of Attorney?
  • No Agent/Attorney-in-fact is available: If your agent/attorney-in-fact is not available, the power ends. To avoid this situation, name a substitute attorney-in-fact when you write the Power of Attorney. Be clear in the document whether you want the people to act jointly or whether one acts only in the event that the other is unable to act.

Terms to Know

General Power of Attorney: A power of attorney which gives very broad powers to the agent/attorney-in-fact.

Limited Power of Attorney: A power of attorney which is limited to specific powers or specific transactions -- such as the power to pay bills, or to buy or sell real estate.

Power of Attorney for Finances: (sometimes just referred to as a "Power of Attorney"): A legal document that allows you to give an individual or institution (your "agent") the power to make decisions about your property and financial affairs. An agent under a Power of Attorney For Finances does not have a say in decisions about your health. Generally the authority of an attorney-in-fact ends if you become incapacitated or die.

Durable Power of Attorney: A durable general or limited power of attorney is a Power of Attorney for Finances that does not stop if you become incapacitated. A Durable Power of Attorney does not necessarily become that way just by the addition of the word "durable." The law of each state governs the validity of a power of attorney and must be checked to determine the correct wording for residents of that state. In general terms, the laws require the addition of words similar to "this power shall not cease in the event I become incapacitated."

Health Care Power of Attorney: A special power of attorney just for your health care. To learn more, see Health Care Power Of Attorney.

Principal: The person who creates the power of attorney. This would be you.

Agent or Attorney-In-Fact: The individual or institution to whom you give the described powers.

What Can An Agent/Attorney-in-fact Do?

It's up to you to determine the powers your Attorney-in-fact has.

In general, an Attorney-in-fact can do everything you can, or be limited to acting just on one specific matter -- or anywhere in between. The only exception is that depending on the state in which you live, an Attorney-in-fact may not be able to make health care decisions for you. If you want an Attorney-in-fact to make health care decisions, you can execute a Health Care Power Of Attorney.

An Agent under a General Power of Attorney can:

  • Use your assets to pay your and your family's everyday expenses.
  • Buy and sell real and personal property.
  • Collect benefits from Social Security, Medicare, or private insurance policies.
  • Invest your money.
  • Perform banking transactions -- including taking loans on your behalf.
  • File and pay your taxes.
  • Negotiate a settlement with the IRS and other taxing authorities.
  • Operate your business.
  • Change your legal domicile to a state where Medicaid rules are more favorable.
  • Access your safe deposit box.

Whatever powers you give the Attorney-in-fact, he or she must:

  • Act in your best interests.
  • Keep accurate records.
  • Keep your property separate from his or hers.
  • Avoid conflicts of interest.

As you will see below, the power of attorney does not have to take effect the day you sign it.

To Learn More

Who Might Need A Durable Power of Attorney?

Everyone should consider having a Durable Power of Attorney "just in case." A diagnosis of a serious health condition makes you more vulnerable than the average person. You should give executing one a high priority since there is a greater chance of not being able to handle financial matters, even if for a short period of time.

Perhaps the biggest benefit of a Durable Power Of Attorney For Finances is that if you do become incapacitated, there will be no need for court proceedings to appoint a guardian or conservator to oversee your property. Court proceedings are public, usually expensive and time consuming. You also don't know who the judge will appoint to handle your affairs or what guidelines the person will follow.

A Durable Power Of Attorney should be considered even if:

  • You have a revocable living trust. Since it's unlikely that you will transfer all your property to the trust, your Agent can control everything that isn't transferred to the trust.
  • You're married. For example, while your spouse does have some authority, usually he or she cannot sell real estate or cars that are registered only in your name.

As you'll see below, the power of attorney does not have to take effect the day you sign it.

When Does A Durable Power Of Attorney Take Effect?

Generally, a power-of-attorney takes effect as soon as you sign it. However, in many states, you can set up a power of attorney to take effect only if you become incapacitated. This is called a "springing power of attorney."

In a state where a springing power is not allowed, you can tell your agent not to act unless and until you become incapacitated or disabled. Theoretically if he or she acts prematurely, you can simply revoke the power of attorney and execute another with a different agent. However, a lot of damage can be done in a short period of time. It's important to only appoint someone you trust.

Who Decides If I Am Incapacitated For Purposes Of A Power Of Attorney?

P>If your Power Of Attorney doesn't take effect until you become incapacitated, the question of how your capacity is determined becomes very important.

You can state in the Power how incapacity is determined. For example, you can say that two doctors must decide that you are incapacitated. You can refine this further and say that two doctors must decide that you are incapacitated, and one of them must be a doctor who attends to your care, unless the doctor is unavailable.

If the issue is mental competency, you may require an opinion from a psychiatrist or clinical psychologist with experience in this area.

If you don't provide guidelines for a decision of incapacity, a court can make the decision using usual standards in your state of residence.

When Might A Guardianship (Conservatorship) Be Better Than A Power of Attorney?

There are some instances when a guardianship might be more effective than using a Durable Power Of Attorney. For example:

  • You may want the court to supervise your finances.
    • If you don't have anyone you trust enough to give authority over your finances, you will probably be better off with a guardianship (even with the extra time and cost) since the court supervises guardians.
  • You might fear family fights.

    • If you think family members might challenge your Durable Power of Attorney or make trouble with your agent/attorney-in-fact, a guardianship may be preferable.

Do I Need A Lawyer To Prepare A Durable Power-Of-Attorney For Finances?

No -- but if you don't use a lawyer to prepare your Durable Power-of-Attorney, it is advisable to at least have one review it before you sign it.

You can purchase standardized forms in office supply shops or over the internet. Be sure it is prepared for the state in which you reside.

An attorney can make certain that your power of attorney accomplishes what you want it to and help head off challenges. An attorney can:

  • Make sure your document meets your state's requirements.
  • Make sure the powers you want to give your attorney-in-fact are covered in the document in language that is legally effective.
  • Assure that powers you do not want to give your attorney-in-fact are not given to that person by the document.
  • See if any additional powers should be spelled out.
  • Testify about your mental competency if the document is challenged.

Who Should I Name As "Agent" Or "Attorney-In-Fact"?

In most states you can name any adult or institution to be your agent/attorney-in-fact.

Clearly, you should only name someone you trust absolutely. The agent/attorney-in-fact has broad discretion over money matters. The best protection against abuse is appointing a person who can be trusted to do the right thing, even when he or she is in financial difficulty.

If there is no one you can trust with this power, it's probably best not to use a power of attorney. Instead, you may want to consider Guardianship or a Living Trust.

Despite the term "attorney-in-fact," the person you give the authority to does not have to be a lawyer.

The person should have a good understanding of the areas in which you're giving the agent decision-making powers.

You should generally name someone who knows you well. The better the agent knows you, the more likely the actions taken will reflect your opinions and values.

Banks, Stock Brokers, Financial Institutions and Social Security

Although legally a power-of-attorney is sufficient to grant your agent power to deal with your bank, stock broker, other financial institutions and Social Security, it is advisable to execute additional documents if you want your agent to be able to deal with any of these institutions on your behalf.

Banks and Financial Institutions

Each bank and financial institution has it's own Power Of Attorney form. It is not at all unusual for such an institution to refuse to honor a Power Of Attorney not written on their form. While it is likely that your agent can force the institution to recognize a valid power of attorney, it is preferable to avoid the hassle which can be time consuming and costly to enforce. It is recommended that instead you obtain a Power of Attorney from each bank and other financial institution with which you transact business, and ask for their form.

Social Security

Social Security takes privacy considerations very seriously. Although legally an Attorney-in-fact has the right to deal with Social Security on your behalf, it is better to also appoint the person as a Representative Payee on Social Security's form. A Representative Payee will have access to information about your Social Security benefits,request changes and otherwise act as if he or she were you. Someone with power of attorney will not have that access unless you specifically request it in writing. Social Security does not recognize Power-of-Attorney documents for purposes of managing benefits.

To Learn More

More Information

Representative Payee

How To Prevent Abuse Under A Power Of Attorney

To prevent abuse of a Power of Attorney: First and foremost, appoint a person or persons that you trust.

To help make sure a trusted person does the right thing, consider the following suggestions:

  • Name more than one person as agent. Require that the people you appoint agree before exercising any of the powers. This will allow for a system of checks and balances and make it more likely that your best interest will remain paramount. Be aware that this arrangement may also slow things down if something has to move quickly.

  • Provide that the agent has to provide a summary of financial actions and a copy of bank/securities statements to someone else. For example, if you appoint your brother as agent, require that he provide a summary of his financial actions every 3 months to your cousin.

  • Ask the bank or other financial institution in which the money is kept to watch for unusual transactions. If there is an unusual transaction, the bank should report to you or to another trusted person.

  • Have a duplicate of all statements sent to a person you trust - for example, an accountant or a bookkeeperor a friend who is financially savvy. 

  • Limit the person's authority. For example, allow the person pay your bills, but not change the beneficiary of your life insurance.

What Is The Best Way To Execute A Durable Power Of Attorney?

The following techniques will help protect your Power of Attorney against challenges and make it easier for your agent/attorney-in-fact to use the power:

  • Execute (sign) a general document, as well as a specific one for each bank or financial institution you use. Legally a power of attorney is effective for all your financial dealings. However, most banks and financial institutions require use of their own form. It's not that a general form is not legal. It's more that their attorneys approved their particular form and the bank or institution knows what it means. A financial institution is likely to accept your form is pushed -- but that takes time and can also take money in the form of legal fees.
  • Execute multiple copies: Consider executing up to six duplicate originals of your Power of Attorney since many companies insist on having an original.
  • Use witnesses: Witnesses can help prove that you were of sound mind when you executed a power of attorney. Even if your state doesn't require it, sign your power of attorney in front of two witnesses. Then have the witnesses sign an affidavit that says:
    • You asked each of the people to act as witnesses to your signing the power of attorney.
    • They each actually witnessed you execute the power of attorney.
    • You appeared to be competent and of sound mind.
    • You appeared to know what you were signing.
    • That you were acting under your own free will and not any undue influence.
    • We provide a sample affidavit at: Durable Power Of Attorney: Affidavit Of Attesting Witnesses.
  • Get your agent's signature notarized: Even if not required by your state, have your agent or agents sign your power of attorney in the presence of a notary public.
  • Videotape the signing ceremony from beginning to end (preferably without stopping and starting again.)
    • Start with a statement of your intent to make a durable power of attorney.
    • Sign the document.
    • Ask the witnesses to witness your signature.
    • Video your witnesses signing as well.
    • Be careful. If you look very ill or even a bit distracted, someone who challenges your Power of Attorney may try to use any visible quirks of behavior or language as evidence that you were in fact not competent when you executed the document.
  • As further proof of your competency, attach a letter from your doctor. The letter should be signed close to the time you sign the power of attorney. It should state that the doctor believes you are competent and that you are not under any undue influence.

It is advisable to re-execute your Power of Attorney with this same procedure every few years. Some companies might hassle your agent over a power of attorney that's more than a few years old.

How Do I Revoke (cancel) A Durable Power Of Attorney?

You can revoke a Power of Attorney at any time for any reason. It doesn't matter whether the Power of Attorney is durable or not.

To revoke a power of attorney:

  • Notify the person you named to act as your agent. Preferably the notification should be in writing and delivered in a manner that assures the person receives it. For example, hand delivery, or overnight mail, return receipt requested.
  • Destroy all copies of the power of attorney.
  • Notify in writing any third parties with whom the agent may have done business or is about to do business.
  • If substantial assets are at stake, the American Bar Association recommends that you may also want to file a document called a "Revocation of Power of Attorney" in the public records where you live or own real estate, and maybe even in the local newspaper(s).