Why you need a durable financial power of attorney

A Durable Financial Power of Attorney is an extremely important estate planning document. This document allows a competent adult to appoint an agent to act in your place with regard to your financial affairs if you would become incapacitated or be incapable of managing your finances for any reason.

Delaying the creation and execution of a Durable Financial Power of Attorney can be a crucial error for several reasons. First, in order to sign a power of attorney you need to have capacity to sign the document. Therefore, if you would develop a medical condition that would limit your capacity you may be incapable of signing a power of attorney when a crisis occurs. Regrettably, many people delay completing this vital estate planning step until it is too late. In order to execute a power of attorney and name an agent to stand in your shoes, you need to have capacity.

When an individual does not have a power of attorney and the individual becomes incapable of making responsible decisions due to incapacity, often the only alternative is a guardianship proceeding. A guardianship proceeding involves litigation and can be expensive. A guardianship proceeding can also be invasive as it involves the profound loss of freedom and dignity for the individual. Once a guardian is appointed by the court, there are ongoing reporting requirements for the guardian as well as court oversight on the actions of the guardian. These reporting requirements which include annual accountings can be very time consuming and costly which often leads to the need for ongoing legal representation. Most situations requiring guardianship could be easily avoided if a power of attorney had been created in advance of the crisis.

Unfortunately, there is a lot of misconception on a power of attorney. One of those misconceptions is that if you are married and own assets jointly with your spouse, or if you have a child on your bank account as a joint owner that you circumvent the need for a power of attorney. Although having a joint owner on a bank account does provide the individual with access to check writing, withdraws, and the ability to communicate with the bank regarding that specific account, the joint ownership is limited to that specific asset. When someone becomes incapable of managing their assets, often their assets consist of more than just a bank account. The power of attorney is necessary to handle taking required minimum distributions from retirement accounts, dealing with pensions, selling real estate, managing investment accounts, handling tax matters, just to name a few, but you can imagine that this list of limitations is extensive.

If you have not already created a power of attorney, you should contact an attorney to begin the process. Because of how important a power of attorney is, and because each power of attorney should be tailored to the individual’s specific needs it is highly advisable to use an attorney for the legal document. Often the money you think you are saving by doing the document on your own or online can end up costing your family, friends, or estate more money to fix down the road. Your power of attorney needs to be customized to you and an attorney can explain all of the options available within the power of attorney document.

The legal advice in this column is general in nature, consult your attorney for advice to fit your particular situation.

Rebecca A. Hobbs, Esquire is licensed to practice in the Commonwealth of Pennsylvania and is certified as an Elder Law Attorney by the National Elder Law Foundation as authorized by the Pennsylvania Supreme Court. She is a principal of the law firm of O’Donnell, Weiss & Mattei, P.C., 41 High Street, Pottstown, and 347 Bridge Street, Phoenixville,610-323-2800, www. owmlaw.com. You can reach Ms. Hobbs at rhobbs@owmlaw.com