Financial Powers of Attorney
Unlike a Will which take effect after death, a financial power of attorney is a legal document that appoints an individual or entity to manage your affairs while you are still alive. Some financial powers of attorney are used for specific purposes (known as limited powers of attorney) should the person be unavailable for some reason, such as being out of the country when an important contract needs to be signed. However, in the estate planning context, a durable financial power of attorney is designed to allow your designated agent to oversee your assets and finances on your behalf when you are physically or mentally incapacitated.
If you do not have a durable financial power of attorney and you become unable to handle your affairs, a judge will appoint someone to manage your assets on your behalf. Since there is no guidance that would normally be provided in a financial power of attorney, the person or entity appointed by the court may not necessarily act consistently with your wishes. So, like executing a Last Will and Testament, preparing a durable financial power of attorney will ensure that you control who will handle your finances during your incapacity, and ultimately save time, money and family harmony compared to going through a court proceeding.
A word of caution on financial powers of attorney – depending on how they are drafted, they can be very powerful documents. If they are drafted very narrowly, they can accidently omit a power that your designated agent should have. In such a case, your agent may not be able to act in your best interest. On the other hand, if your financial power of attorney is overly-broad, your agent may have too much power. This can be dangerous if the person you designate ultimately chooses to abuse their power, either by withholding money you may need to live on or actually steals from you. So, when preparing a financial power of attorney, be certain on how much power you want to authorize and who you trust enough to make sure they will follow your wishes.