When you hear the words “Estate Plan” you may immediately think of a Will or a Trust, those final set of instructions of what to do with money and property after you have passed away. However, ask any estate planning attorney, and you’ll learn that a complete estate plan involves a collection of documents which work together. These ancillary documents include Financial Power of Attorney (FPOA) and Health Care documents (including Medical Power of Attorney, HIPAA and Living Will). But if you have a will or a trust, why have a Financial Power of Attorney? To many this document can seem redundant. And yet, the FPOA is a vital part of a comprehensive estate plan.
What is a Financial Power of Attorney?
Unlike a Will, which is only effective when you pass away, a FPOA is only effective while you are alive. When you sign an FPOA, you as the “principal” grant a trusted helper, known as an “agent” the power to act on your behalf. This document tells the bank or other financial institution that your FPOA Agent has the legal authority to manage your financial matters. These can include paying bills, conducting banking transactions, giving gifts of money, or buying and selling real property.
Most estate planning attorneys will ask you to name an agent, and then select two or three backup agents, in case your first choice cannot serve for any reason. The other thing to consider when completing an FPOA is deciding when the document will take effect. As mentioned above, power of attorney documents (both medical and financial) are only valid while you are alive. However, for the FPOA, you can decide when your agents can begin acting on your behalf.
You have the option to allow your agents to begin acting on your behalf as soon as you sign the document. Or, you can say your agents may only begin to act on your behalf when a doctor has signed a report stating you are incapacitated. This particular choice can be stressful for clients, as they want to ensure their Agents can act for them, but not too soon or too late. This is why it is so important to pick people you can trust!
Why Do I Need a Financial Power of Attorney?
Death is scary, especially when thinking of your own. This fear is why only 33% of adult Americans have done any estate planning, despite more than 2/3rds believing such documents are important, according to a 2021 survey by Caring.com. Yet, while most people focus on the finality of a passing away, it is easy to overlook that potential phase known as incapacity. This phase looks different from person-to-person, and family-to-family, but ultimately it boils down to you being unable to manage finances or even make medical decisions, and can be due to age, illness, mental disorder, or perhaps even a dependence on prescription medication or other substance.
You recall from above, a will is only effective when you pass away, so cannot control who is going to ensure bills get paid or money invested on your behalf. Having a FPOA, which is effective while you are alive, will allow your loved ones and trusted helper to take care of you during this time. Additionally, having an FPOA can prevent the need for further court involvement by setting up a Guardianship.
Consequences of Not Having a Financial Power of Attorney
Guardianship is where the court formally appoints someone to manage either your daily life (guardian of the person), your finances (guardian of the estate), or both. The process to initiate a guardianship and see it all the way through is long and multi-stepped. Oftentimes, a guardianship is sought due to you being vulnerable to financial influence by someone who doesn’t have your best interest at heart. Yet, the length of time it takes to have a guardianship set up leaves you (and your finances) vulnerable. Having a Financial Power of Attorney in place, and on record with your bank or financial institution, allows people who do have your best interests at heart able to step in and help out when you need it most.
We Are Here to Help
Just like a balanced breakfast, a Financial Power of Attorney is part of a complete estate plan which allows you to take control by providing instructions on who, when, and how your trusted helpers can help when they are needed most. Estate plans can be drafted in a number of different ways to meet your goals. Additionally, we work with you to help give you and your loved ones the peace of mind that comes with knowing plans are in place for your care if you become ill and that your wishes will be honored when you pass away. Nielsen Law PLLC provides family focused estate planning to individuals and families in Austin, Round Rock, Cedar Park, and the Central Texas area. For more information and to learn about our firm, please contact us.
