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Marc A. Hebert's Money Sense: Why it's important to set up a durable power of attorney

July 21. 2017 8:14PM

Imagine that tomorrow you suddenly become severely ill or incapacitated. Who would take care of your finances? How would they do it? If you don't have a durable power of attorney, others, even your spouse, might not be able to conduct all your financial business on your behalf.

A power of attorney is a legal document authorizing another person (an agent), or financial institution, to step in on your behalf to execute certain financial transactions should you be unable to do so. The transaction might be as basic as paying bills and handling insurance claims, or as complex as selling real estate and filing a tax return.

Without a power of attorney, your spouse, children or friends will probably have to petition the court to step in on your behalf, which is a cumbersome, time-consuming and potentially expensive process at a time of immediate needs and emotional stress. It might also be a very public process. If your family needs to go to court, the world might now know your family thinks you can't take care of your own finances. Also, If relatives fight over who should be your guardian, the situation could get even further exposed.

Just about any adult, young or old, single or married, should have a power of attorney. Yes, even married. While your spouse can probably take care of the basic bill paying, many financial transactions, such as the sale of an investment or home, might require both spouses' signatures. You might have some assets in your name only, like a 401(k) or IRA. In these types of accounts, your spouse has no access to those assets should they be needed to pay bills, due to the disability that is preventing you from handling your own finances.

Some types of powers of attorney are convenience documents used for specific transactions or to manage finances for a limited time while one is away. There is also a durable power of attorney for medical care, which appoints someone to make medical decisions on your behalf should you be incapacitated. This is a separate document.

The financial power of attorney we mostly recommend is a durable power of attorney. This goes into effect upon signing, and remains in effect through any incapacity until your death. As long as you are competent, you can revoke your power of attorney anytime.

Have an estate planning attorney draft the power of attorney. To be fully effective, it needs to meet state laws, which vary from state to state.

Beyond granting broad powers, the document needs to be specific about certain rights granted to the agent. For example, the grantor could give an agent the right to make gifts on behalf of the grantor, or the right to complete and sign your tax returns, exercise stock options, or sue a third party.

At the same time, you might want to incorporate certain restrictions. It could indicate under what conditions your assets are sold.

Your attorney might also hold the document for you pending release if you should become incapacitated.

If you can't think of someone you trust enough to appoint as your agent, with broad authority over your finances, perhaps creating a durable power of attorney isn't for you. Another area of concern could be if family members will challenge your document and make trouble for your agent. A conservatorship or guardianship comes with the built-in safeguard of court supervision, and might be worth the cost and trouble.

Finally, be sure to review and periodically update your document so that it reflects your needs, desires and current situation.

Marc A. Hebert, M.S., CFP, is a senior member and president of the wealth management and financial planning firm The Harbor Group of Bedford. Email questions to Marc at Your question and his response might appear in a future column.


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