Financial Powers of Attorney
In the blink of an eye, another year has come, and gone. The pandemic may be over, but the threat of ending up in the hospital for an extended period of time never disappeared. The frosty weather has forced us indoors, and it seems almost impossible not to get sick. We’re being bombarded by viruses that affect our respiratory system (COVID -19, the flu, RSV etc.), and if we’re unlucky enough, they can lead to serious illnesses like pneumonia that can land you in the hospital faster than you can say, “I wish I had a financial power of attorney.” Do you have the necessary legal documents that allow your trusted family members to access your bank accounts, and pay your bills? If not, your financial health may be at stake!
A financial power of attorney is a legal document that allows you, as the principal, to designate another person as your agent, giving that person broad powers to make decisions on your behalf. This document is invaluable if you become incapacitated, and you need to understand the effect of a financial power of attorney in order to execute one. Unlike a Will, a financial power of attorney is used by another during your lifetime, and to your benefit. The consequences for not having one can be costly, and time-consuming, so you want to make sure you have it before you need it.
A standard financial power of attorney consists of two parts. The first part is a general grant of power to your agent. Basically, you are authorizing your agent (1) to transact business, and (2) to execute documents on your behalf. The second part of a financial power of attorney is a grant of specific powers enumerated by statute. In order to grant any of these “hot” powers, the powers themselves must be expressly written in your financial power of attorney, which means that your agent will not be able to assume them under the general grant of power. You need to decide which of these specific powers you want to include in your document.
For example, one of the specified powers is the ability to make gifts. At the start of the new year, on January 1, 2023, the annual gift tax exclusion increased to $17,000 per recipient. If you are comfortable with your agent passing substantial amounts of assets to others during your lifetime to avoid gift, or inheritance taxes, you should consider including this power in your financial power of attorney. Another specified power is the power to make, or change beneficiary designations on insurance policies, retirement accounts, and other types of property. Although you may be uncomfortable with the thought of your agent changing a beneficiary designation, there are benefits to including this power in your financial power of attorney, especially if you’ve chosen to designate your estate as a beneficiary, and you have significant debt at the time of your death. Ultimately, you decide which specified powers you are comfortable including.
Another specified power is the ability to access electronic communications, and digital assets. Most people opt to receive electronic statements, and bills, instead of mailed paper copies. If you want your agent to be able to access your emails on your cellphone, or personal laptop, you want to include this power in your financial power of attorney. Emails can be informative to your agent, and having access to them can make it easier for your agent to identify your banking institutions, and which bills need to be paid. If you want your agent to be able to access this information, be sure to include it in your financial power of attorney (and make sure your agent has access to your passwords!).
Similar to scheduling your annual health evaluation at your primary physician’s office, you should be reviewing the information in your financial power of attorney on a regular basis. Even if you have a financial power of attorney, your document needs to be up-to-date, and should meet the latest statutory requirements. First, you need to make sure that the person you named as your primary agent is still able, and willing to act as your agent. You also need to make sure that you have alternate agents listed in case your primary agent is unable to act in the future. Finally, if you executed a financial power of attorney prior to January 1, 2015, your power of attorney may not meet requirements of Act 95 which amended the Pennsylvania Consolidated Statutes governing powers of attorney. Although your financial power of attorney is still valid, most legal departments are familiar with the latest statutory requirements. It may take a few days for an institution to check the validity of your outdated financial power of attorney, which is far from optimal in an emergency.
The future is unpredictable, and that makes having a financial power of attorney invaluable. You never know if, or when you’ll end up in the hospital for a long period of time. Being prepared is your best option to optimize the way in which your property is transferred to your loved ones, and to maintain control of your finances during your lifetime.