Life doesn’t always go as expected.
At some point in your life, you may become incapacitated and be unable to make financial decisions for you or your family.
If you don’t have someone that can help you out, such as a joint owner on your bank account, you might end up missing payments on your bills.
This could ruin your credit and result in your house getting foreclosed on.
Thankfully, there is a way to avoid this fate. While you can’t make sure you’ll never become incapacitated, you can make a plan.
One way to avoid this situation is by setting up a power of attorney to help you through these tough times.
What is a Power of Attorney?
A power of attorney is essentially a legal document.
These types of legal forms generally give someone else the authority to act on your behalf as if they were you.
It’s important to note that power of attorney forms can vary from state to state based on state laws.
Each state has its own laws governing power of attorney so what may work in one state may not work in another state.
If you move from one state to another, you should review your power of attorney documents to make sure they’re still in effect.
You should consult a lawyer before making any power of attorney decisions to make sure you’re not giving up any powers you aren’t aware of. If you don’t consult a professional, you might find yourself in a sticky situation later.
Power of attorney forms can be useful in a number of different situations.
There are many different types of power of attorneys you can grant.
In general, a power of attorney has a fiduciary duty to act in your best interests.
Unfortunately, this doesn’t always happen.
It’s extremely important to very carefully select a power of attorney that you trust would do what you’d want them to do.
- General power of attorney
- Durable power of attorney
- Special or limited power of attorney
- Medical power of attorney
- Springing durable power of attorney
General Power of Attorney
You could technically grant a general power of attorney that allows someone to make all decisions on your behalf.
This type of power of attorney works while you’re of sound mind, but expires when you become incapacitated.
Durable Power of Attorney
Chances are, you’ll need a power of attorney more when you’re incapacitated than when you can make your own decisions.
For that reason, another type of power of attorney exists.
A durable power of attorney is like a general power of attorney, except it continues to remain in effect after you become incapacitated.
The person that is granted a power of attorney is known as an attorney in fact.
Special or Limited Power of Attorney
If you’d rather not grant someone that much power, you can grant more a specific power of attorney that gives only certain powers to a person.
A limited power of attorney may allow someone to sell your home on your behalf.
You could also set up a limited financial power of attorney to let someone take care of your financial matters, but no other aspects of your life.
Medical Power of Attorney
A medical power of attorney also exists.
These allow people to make medical decisions on your behalf in case you become incapacitated. This doesn’t grant non-medical powers, though.
Springing Durable Power of Attorney
Some states allow a special type of power of attorney form, called a springing durable power of attorney, that allows someone to have power of attorney after a certain event happens.
Usually, this event is you becoming incapacitated. This way, the person doesn’t have power of attorney before you become incapacitated.
At the same time, you have someone that can help you after you become incapacitated. This is important because you can’t sign a power of attorney after you’re incapacitated.
Instead, a person would have to go through the court system to be granted access to be your guardian. This can be a lengthy process when immediate decisions need to be made.
Can You Get a Power of Attorney for Bank Accounts?
You can set up a power of attorney to allow someone to access your bank account on your behalf.
Depending on how you set up the power of attorney, the person may be able to take many actions on your behalf.
Be specific about what actions you want a power of attorney to be able to take with your finances and your financial accounts.
You may specify the person can access all of your accounts at an institution or just a checking account.
This way, there’s no question about what you intended.
This is why it is important to have a professional help you set up a power of attorney.
Professionals that deal with the concept of power of attorney on a regular basis can help you think of what to watch out for. They can also help you figure out how to properly set up a power of attorney to have the effect you desire.
Why Would You Need One?
There are many reasons you may want to give someone access to your bank account through a power of attorney.
For instance, you may want to give someone access to your bank accounts so they can pay bills and deposit checks on your behalf.
This can be very important if you become incapacitated. If you don’t have anyone that can help you out, bill payments may be missed. Your car could be repossessed or your home could be foreclosed on.
In longer incapacitation scenarios, you may even want to give someone the power to borrow money on your behalf.
If your financial reserves run out, it might make sense for them to borrow money in your name so they can keep making loan payments.
For instance, you might want to allow them to borrow money so they can keep making the mortgage payment until they can sell your home to cash out your equity. If the house got foreclosed on, you’d lose all of that equity.
You might want to give someone access to your retirement accounts so they can make withdrawals to have the ability to pay your bills. This makes sense if you’re older and you’re worried about your mental sharpness.
In some cases, you may want to simply grant access to your safe deposit box at the bank account on your behalf.
There may be an heirloom in your safe deposit box you want your family members to be able to access in case you get incapacitated.
How to Set up a Power of Attorney
If you’re ready to set up a power of attorney, the best way to do so is by consulting a professional.
Unfortunately, consulting a professional costs more than doing it yourself.
However, their advice could save you from making a decision that has unintended consequences that you later regret.
There are plenty of websites that sell generic power of attorney forms, as well.
If you go this route, make sure you understand exactly what powers you’re giving and in what circumstances.
Also, make sure the specific form you’re using will work in your state and situation.
What Can a Power of Attorney Do?
The power of attorney can only do what you specify when you fill out the power of attorney form. If you give them broad access, they may be able to do almost anything. If you decide to only give specific access, they can only do what you specify.
A power of attorney is also limited by your state’s laws.
When it comes to bank accounts, the more specific you are the better off you are. It protects you from having a power of attorney doing something you didn’t want them to do.
In theory, certain power of attorney situations may give the attorney in fact access to change beneficiaries on your financial accounts.
This is another reason to be careful with the powers you give.
Even so, a person that has power of attorney is supposed to act in your benefit interests.
Is Power of Attorney the Same as a Joint Owner?
A power of attorney is not the same as a joint owner.
A joint owner has all of the same rights you do over a bank account.
A power of attorney is supposed to act in your best interests and may have limited power of what can happen with your bank account.
Banks Can Be Cautious With Power of Attorneys
Financial institutions can also be cautious when dealing with a power of attorney form.
They do this to protect your best interests as an account holder. They also want to prevent themselves from getting sued by giving improper access to your accounts.
After all, you don’t want someone accessing your accounts with an old power of attorney form you forgot about.
For this reason, some banks require you to fill out their specific power of attorney forms.
Even if they don’t require this, it can make life easier if you use their forms if you plan on giving a person power of attorney over your accounts at that institution.
For instance, Citi has its own power of attorney form for their accounts for their California residents.
Consult a Legal Professional
If you’re considering instituting a power of attorney, your best bet is to talk to a legal professional that specializes in estate planning and power of attorney situations
Legal professionals may be able to help you be aware of which local financial institutions make using a power of attorney difficult.
They may also know how to prevent these issues with these institutions.
They can guide you to make the best decisions based on your individual situation.
If you decide to make a power of attorney for bank accounts on your own, be extremely cautious. Make sure you understand exactly what you’re doing before you sign the document.