Power of Attorney
A power of attorney (POA) is a legal document that grants one person — the agent or attorney-in-fact — the authority to act on behalf of another person — the principal — in financial, legal, or medical matters.
A financial power of attorney is one of the foundational documents in personal financial planning because it ensures that someone trusted can manage accounts, pay bills, file taxes, and make investment decisions if the principal becomes incapacitated. Without it, a family member may need to petition a court for guardianship or conservatorship — a process that is costly, slow, and public.
Powers of attorney come in two primary forms. A general POA grants broad authority but terminates automatically if the principal becomes incapacitated — the opposite of what most people need. A durable power of attorney remains in effect even after incapacitation, which is the form most estate planning attorneys recommend for financial purposes. A springing POA only activates upon a specified event, such as a physician certifying incapacity, though it can create delays if the triggering condition is disputed.
The scope of authority granted matters significantly. A broadly drafted financial POA may allow the agent to make gifts, change beneficiary designations, or fund trusts — actions that can substantially alter the estate plan. Principals should work with an attorney to tailor the document's scope to their specific situation and to include safeguards against potential misuse.
Choosing the right agent is as important as the legal drafting. The agent has a fiduciary duty to act in the principal's best interests, but practical oversight is limited. Financial institutions may require their own forms or notarized documents before honoring a POA, so it is important to confirm that the chosen document meets the requirements of all relevant institutions. POAs should be reviewed and updated regularly, as some banks decline to honor documents that are more than a few years old.