by Kraig Strom, Certified Financial Planner Practitioner and Chartered Financial Consultant
One of the foundational components of a comprehensive estate plan is the financial power of attorney. This legal document gives a trusted agent, known as your attorney-in-fact, the authority to act on your behalf in financial matters. While a medical power of attorney form is also an important part of an estate plan, and where our minds often go when we start thinking about questions that could arise when someone becomes unable to act on their own behalf, the financial power of attorney is more important than you might realize at first.
A financial power of attorney grants checkbook control over your financial matters, whether they be business or personal, to someone else so they can handle tasks you’re no longer able to take care of on your own. That could be things as simple as using your assets to pay your regular bills and everyday expenses. Or it could mean discussing your mortgage with your lender, completing the purchase of a home, handling transactions related to a business you own—anything that’s financial in nature. Without a financial power of attorney, your family would need to go to court to get the authority to act for you in such matters should you become incapacitated. Putting one in place gives you the choice of who will have checkbook control to act on your behalf when you’re not able to do it.
While one of the key reasons an estate plan is put into place is to make sure the legal mechanisms are in place to look after the interests of the principal when they’re incapacitated and can’t make decisions for themselves, a financial power of attorney can be of great use even when the principal has their faculties. In cases where a physical ailment makes completing financial transactions difficult, having a designated attorney-in-fact able to act for you can be a tremendous help.
For example, one client I worked with is a father who, while he’s sharp and mentally competent to make his own decisions, doesn’t have the ability to move around easily and take care of business in the way that he needs to. Therefore, he gave his son power of attorney. Right now, his son can talk to the investment company where his retirement accounts are to manage those. His son was also able to sell his home, acting as his attorney-in-fact to sign all the paperwork and get the property sold so that his father didn’t have to go through the physical stress of having to be transported all over to get the transaction completed. This situation shows how a financial power of attorney can be a living document that makes what could be difficult situations much more manageable.
In California, a power of attorney for financial matters must be notarized to be legally binding. While it is possible to find short, two- or three-page templates for this type of document online, you’re much better off working with a law firm to create a robust, personalized document that reflects your situation. You’re constructing a legal toolbox that allows your agent to act on your behalf in the areas in which you want them to have control. A cookie-cutter form isn’t going to do the job, especially if your financial situation is complex.
When that financial power of attorney needs to be put to use, your agent will need to provide a copy to the bank, mortgage company, investment firm, or other institution they’ll be working with on your behalf. That company will then review the document before they start working with your attorney-in-fact, and they will keep the power of attorney on file as a record that your representative is authorized to act on your behalf. This protects your interests while enabling the person you’ve designated to undertake transactions for you.
At BarthCalderon, we’re experts in the various elements that should be part of a comprehensive estate plan. We work with our clients to put together individualized plans that anticipate their needs, ensuring they understand how the legal tools at their disposal work to protect them and their loved ones. To find out more about financial powers of attorney and our estate planning services, contact us here.