Second in a Series on Estate Planning Myths.
A financial power of attorney (“POA”) can ensure that if you become incompetent, you will not need a court-appointed guardian. Instead you can name the person to act on your behalf with respect to your financial affairs. That person is known as the attorney-in-fact (“AIF”).
I encounter many misconceptions about financial POAs in my practice. Here are some of the common myths debunked.
- You can keep using the POA after someone dies. Death revokes a financial POA. You can’t write checks using a POA after the person who gave the power dies though I have seen funeral bills inappropriately paid in this way. The individual who pays a funeral bill from their own funds can be reimbursed from the estate after the court empowers someone to serve as Executor.
- You should keep the original POA in your safe deposit box. The POA is what gives your AIF the power to get into your safe deposit box. The bank will require the original from the AIF. If you decide to store the original POA in your safe deposit box, be sure to have another person designated as signer on the box so that he or she can open the box and retrieve the original when it is needed. Your other option is to record the original POA at the register of deeds in your county.
- Your AIF can continue making gifts to your children or donations to charity using the POA. Giving away your money to individuals or to charity is only acceptable if the POA states that this is expressly permitted. Otherwise, because it is against your financial interest to give away your money, your AIF can’t do so.
- Your federal benefits can be accessed using a POA. A POA must contain language referring to, for example, your thrift savings plan, federal pension, or civil service retirement account if the AIF is to access those. Otherwise, the government will require a guardianship be established.
- If you can’t pick one child to serve as AIF, you should just name all of them to act together so no one’s feelings are hurt. Multiple AIFs serving together create administrative issues and liability for all those acting. Instead of naming children to act jointly, have a family discussion ahead of time and name them one at a time or at most two to serve together.
- The POA is only usable if you are incompetent. Depending on the terms in the document, the POA may be usable at any time, which can be useful if you are going on a trip or you want to avoid the necessity of a doctor declaring you incompetent. Institutions dislike POAs that are only usable if you have been declared incompetent because it requires the institution to determine whether your incompetency has been proven.
- It’s easier to add your child as a joint owner on a bank account instead of naming them as AIF. The banks often suggest that a child be added as a joint owner to your account so that the child can write checks. However, if the child is the joint owner, he or she will inherit all the money in the account at your death, which could upset your estate plan. Further, the money in the account could be used to pay the child’s creditors or become entangled in the child’s divorce settlement. Naming the child as AIF through a POA avoids these issues.
- You don’t need a POA naming a spouse because marriage solves all of that. Your spouse cannot access your IRA or any other asset in your name alone if they are not named as you AIF in your POA. They also cannot enter contracts on your behalf, sign a deed for you, or borrow money in your name without a POA.
Always sort facts from fiction by meeting with an estate planning attorney to discuss your situation and obtain a financial POA. If you have a form POA in place that you obtained from the internet, you should have it reviewed. Many issues are not covered by forms and need to be personalized for you. Having a good POA in place ensures that someone you know and trust will handle things for you if you can’t do it for yourself. Your family will be grateful that you thought to set things up well.
First published in Southern Neighbor, June 2015