When you begin estate planning, the professional with which you work will likely ask you to establish a financial power of attorney. A financial POA is a document that grants an individual the power to make financial decisions on your behalf in specific situations.
Though financial powers of attorney must act in the principal’s best interests, they have considerable power. This is because a financial POA grants the agent a wide range of control over everything from the principal’s bank accounts to investments to beneficiary designations. That said, you can limit the amount of power you give your POA by carefully selecting the type of document you use. FCI explores the three main types of financial POAs you can use.
General Power POA
If you use a general power POA, you grant the agent you choose the power to act on your behalf in all financial-related matters—at least, to the extent that state law allows. General POAs grant the agent the ability to sign checks, make withdrawals, sell property, file taxes, manage assets and more on your behalf.
Durable POA
With a durable power of attorney, your agent has the power to make decisions regarding certain property, legal issues and financial matters both before and after you become incapacitated. Which issues a DPOA can control depends on what you specify in your agreement. Though he or she can pay medical bills on your behalf, he or she cannot make any health-related decisions for you.
Limited POA
Through a limited POA, you grant an agent the power to act for you in specific matters. Which matters depends on what you state in the agreement.
In addition to granting limited powers, limited POAs are only effective for specified periods. For instance, you may use a limited POA while you are out of the country for one year, after which time it expires.
You can control the power you grant a POA by being selective in the type of document you use. For this reason, you should carefully review your options before creating or signing anything.
