What You Should Know About Financial Powers of Attorney
1. What is a Financial Power of Attorney?
A Financial Power of Attorney is a personal legal document that nominates someone (the “agent”) to manage financial affairs on behalf of the person signing the document (the “principal”). The document is usually drafted to become effective upon the mental incapacity of the principal.
A Financial Power of Attorney is also referred to as a general power of attorney or a durable power of attorney. The term “general” describes the nature of the document, which seeks to address all financial matters that could possibly arise. The term “durable” describes the duration of the document, which continues throughout a period of incapacity.
By signing a Financial Power of Attorney, the principal intends to eliminate the need for court involvement in the event the principal becomes incapacitated. For example, a bank in Arizona, may lock the account of an incapacitated person unless a court-appointed conservator is approved to manage the account. However, the bank may also give control of the account to an agent named in a valid Financial Power of Attorney.
2. Who should have a Financial Power of Attorney?
A Financial Power of Attorney is appropriate for any adult regardless of age, net worth, or health.
3. What are the consequences of not having a Financial Power of Attorney?
Without a valid Financial Power of Attorney, it may be difficult for an incapacitated person’s caregivers to provide financial and medical support until someone is appointed by the local court as conservator. This process – referred to as a conservatorship proceeding – is expensive, time-consuming, and public. An attorney must be appointed to represent the incapacitated person (the “ward”) throughout the process. The court will order investigations to determine whether the ward is incapacitated and whether the applicant is qualified to serve as conservator.
The risk is reduced when the incapacitated person is married and the spouse is a joint owner of all assets. However, there are many possible situations that still benefit from the availability of a Financial Power of Attorney. For example, an employer may refuse to give a spouse the right to make changes to or withdrawals from a company retirement plan. A Financial Power of Attorney would resolve this problem.
4. Does a Financial Power of Attorney address medical care?
No. A separate Health Care Power of Attorney should be used to nominate an agent for health decisions on the principal’s behalf.
5. Is there a required form to use?
No. Contrary to popular belief, there is no statutory form and the State of Arizona does not provide any sample forms. The Arizona forms commonly offered by self-help websites are based on forms written for other states and, therefore, risky to use.
A Financial Power of Attorney is most likely to be effective when prepared simultaneously with the principal’s will or living trust by an Arizona estate planning attorney. The attorney should be familiar with Arizona-specific provisions and drafting requirements.
As many would attest from experience, even an attorney’s form is not always honored. Financial Powers of Attorney are notorious for not being accepted for a wide variety of logical and illogical reasons. The popularity of revocable living trusts is partly in response to this reality.
6. When is the Financial Power of Attorney effective?
A Financial Power of Attorney is drafted to be either “springing” or “non-springing.” A springing power of attorney will become effective upon a formal determination of incapacity. The document will include a procedure for making this determination. A non-springing power of attorney is effective immediately upon signing. The non-springing power of attorney eliminates the need for any formal determination of incapacity, which can be challenging to obtain in a crisis. The springing power of attorney takes a more cautious approach.
7. How often should a Financial Power of Attorney be updated?
The best practice is to sign a new Financial Power of Attorney at least every 10 years or sooner if the principal has been diagnosed with diminished mental capacity.
8. How much does a Financial Power of Attorney cost?
Typically the cost of a Financial Power of Attorney will be incorporated into the package fee for a comprehensive Estate Plan. However, most Arizona estate planning attorneys will prepare the document a la carte for approximately $250 to $450.
About the Author
Thomas J. Bouman provides legal counsel in the areas of estate planning, estate settlement, and asset protection. He brings a highly systematic approach to the practice of law, which is critically important when wading through the complex, and often bizarre, legal requirements associated with estate and trust law. Mr. Bouman is author of the Arizona Estate Administration Answer Book and a prominent member of Wealth Counsel, LLC, the nation’s premiere organization of estate planning attorneys.