If you have a parent who has problems making financial decisions due to age or a medical condition, you may consider helping your relative create a financial power of attorney. By ensuring someone you trust handles your parent’s finances, you can prevent your loved one from suffering asset loss and ruin.
While financial powers of attorney can greatly vary, there are basics common to financial POAs.
The principal establishes the powers
While it is true that a financial POA, or an agent, has authority over the assets of a person, also known as the principal, such power is not always absolute. A principal can delegate specific powers to a POA while withholding other forms of authority. This may help you feel confident that your parent will not lose too much power if your loved one still has some decision-making capacity.
This is also a good time to consider what an agent can do to protect the assets of the principal. For example, the POA document could empower the agent to put the assets of your parent into a trust. Some POAs also manage the retirement plan of the principal.
The principal can create reimbursement
Sometimes POA duties occupy a lot of time and may take away opportunities to earn money. This is why a principal can work out a plan in the POA document to compensate the agent for time spent in that capacity. This may help the POA feel less stressed about carrying out the responsibilities of the position.
Providing asset information may help a POA
Depending on the scope of the POA, the agent may have to pay all the bills of the principal and manage all the accounts the principal owns. As such, it can help to list the assets and liabilities of the principal in advance. Otherwise, the agent will have to locate and identify all of them, which could be time-consuming and stressful.
Another way to assist is to inform an agent where the principal keeps bills and other financial papers. If your parent also does financial transactions online, the agent should have contact information for the financial institutions that hold the accounts of your loved one.
Given the scope of authority a power of attorney can have, you should cover all possible bases when creating your POA. When done right, a power of attorney is a form of estate planning that helps safeguard property and other assets from loss or destruction.