Everybody should have a power of attorney. But not everybody knows exactly what it is or why it’s so important.
A power of attorney is a legal document that empowers a person you trust to handle your financial affairs if and when you become incapacitated. While you’re up and around, the document just sits in a file. But if you’re in an accident, where suddenly you can’t act on your own behalf, the document allows somebody else to make decisions on your behalf—usually temporarily, until you can start handling your own affairs again. At that point, the document goes back in the file, and you’re back in charge.
There are several flavors. What is called a Limited Power of Attorney is used when you want someone to act on your behalf only in a certain circumstance. A General Power of Attorney is more powerful because you’re giving someone else the power to act on your behalf whenever you’re unable to manage your own affairs on your own. But either way, when the power of attorney is triggered, it can be used for all legal and financial matters.
Who would draw up this important document? You should consult an attorney; many of them will have a template document that they can modify to your specific circumstances. The key is finding a person you really trust to handle things on your behalf—and then hope you never need them to.
About the Author: Bob Veres has been a commentator, author and consultant in the financial services industry for more than 20 years. Over his 20-year career in the financial services world, Mr. Veres has worked as editor of Financial Planning magazine; as a contributing editor to the Journal of Financial Planning; as a columnist and editor-at-large of Dow Jones Investment Advisor magazine; and as editor of Morningstar’s advisor web site: MorningstarAdvisor.com.
Mr. Veres has been named one of the most influential people in the financial planning profession by Investment Advisor magazine and Financial Planning magazine, was granted the NAPFA Special Achievement Award by the National Association of Personal Financial Advisors, and most recently the Heart of Financial Planning Distinguished Service Award from the Denver-based Financial Planning Association.
It could happen to you or to your elderly parent. You’ve had an accident or a medical problem. For a few hours, a few days, maybe longer, you’re unable to take care of your financial affairs. Checks can’t be written. Decisions can’t be made. There’s an answer.