When people are advised of the importance of advanced directives such as a living will or a power of attorney for healthcare to accompany a will or trust, they may also want to consider setting up a financial POA to oversee the financial wellbeing of the estate.
Surprisingly enough, 60% of adults in the Unites States do not even have a basic end-of-life plan such as a will or a trust, let alone advanced directives that outline future long-term care needs and estate management. Fortunately, 81% of Americans who are aged 72 or older, as well as 58% of baby boomers aged 53-71, do have some kind of estate-planning document.
The function of a financial power of attorney
A financial POA is a legal document that gives an individual, named the agent or attorney-in-fact, the authority to act on behalf of someone else, called the principal. The agent may be a spouse or relative, friend or associate, or financial or legal professional, and should be organized, responsible and trustworthy. The agent may have limited or broad authority to act, depending on the wording of the document.
Types of financial POA
Some financial POAs can take effect immediately, or only if an emergency happens that incapacitates the principal and requires the agent to make important financial decisions for the principal. A medical event such as a coma, dementia or mental illness can allow a financial POA to spring into effect.
In New York, there are three types of POA’s that operate under different situations:
- A nondurable POA, limited in scope and duration, is used for specific reasons such as the signing of a contract by proxy, the sale of real estate in another state or decisions made regarding investments on behalf of the principal.
- A durable POA, which may be used immediately, authorizes the agent to act on behalf of the principal during or surviving incapacity, and is in effect unless revoked by or upon the death of the principal. The durable POA functions like a conservatorship but is a more accessible and cost-effective instrument.
- A springing POA relies on the opinions of the medical professionals overseeing the principal’s health regarding his/her competency in the financial dealings of the estate, and it remains in effect unless revoked by court order or on the principal’s death.
When considering an estate plan, it is important to have highly skilled legal counsel based in Manhattan and serving all of New York City who can advise on all aspects of the process.