Allison Harrison
May 1, 2024

Understanding the Durable Financial Power of Attorney

A Durable Financial Power Of Attorney (“DFPOA”) is a legal paper where you, the "principal," choose someone, the "agent," to manage your money and property for you. The word "durable" means it's effective immediately, and when something happens, you can't make decisions.

Why is it essential?

Protection: If you get sick or hurt and can't manage your money, the person you've chosen can step in. This way, your bills get paid, and your property is taken care of. It also prevents financial institutions from interpreting your medical records (there are “springing POAs” discussed below they are only effective upon a date or event, typically a medical diagnosis) 

Choice: Without a DFPOA, you may run into financial ruin or have a court decide who manages your things. By having this paper, you get to choose someone you trust with your money and assets. Your DFPOA can be changed at any time, as long as you still have mental capacity, so if something happens between you and the principal, you can change who the principal is. 

Peace of Mind: Knowing someone you trust is ready to help if needed can be reassuring.

Pitfalls of a Durable Power of Attorney:

While a DFPOA can be super helpful, it’s not without some disadvantages. 

Trust: It is effective immediately. Theoretically, the agent could wipe out all your money the day you sign it (they would suffer repercussions - keep reading). You're giving someone a lot of power. If they're not trustworthy, they might misuse your money or property.

Misunderstandings: It's crucial to talk with your principal and ensure they know your wishes. Like all relationships, having clear lines of communication is key. It is essential for you to have clear set expectations with your agent.  

Durable vs. Springing Power of Attorney:

You might hear about another type called a "Springing Power of Attorney." Here's the difference:

Durable Power of Attorney is effective the day you sign it. Even if you're perfectly okay, your agent can act. Springing Power of Attorney: "Springs" into action only when a specific event happens, like if a doctor says you can't make decisions anymore. Springing power of attorney removes some of the risks of your agent acting inappropriately, but it creates a new risk - financial institutions interpreting your medical diagnosis. It is extremely important to talk with your attorney to evaluate the risks and rewards of both types of power of attorney. 

Can you still make decisions after signing?

Yes, you can! Just because you sign a DFPOA doesn't mean you give up control. You can still make all your decisions. The agent is there as a backup. If you feel better or change your mind about your agent, you can change or revoke the DFPOA anytime.

What does the "Agent" do?

Paying Bills: If you do not have an auto-pay set up for all your expenses, your agent can issue payments for you. This includes rent, utilities, or even your Netflix subscription!

Managing Investments: If you have stocks or investment accounts, your agent can watch over them. They can buy or sell based on what's best for you.

Buying or Selling Property: Your agent can buy and sell real estate, automobiles, and other items you may need for your health and well-being. 

Accessing Bank Accounts: Your agent can deposit or withdraw money from your accounts. This can be extremely helpful if you have someone who you regularly pay in cash or check (i.e. you pay the neighbor kid each week to cut the grass; your agent can withdraw money from your bank account to pay the budding entrepreneur!). 

Filing Taxes: Your agent can ensure your taxes are filed and paid on time.

Handling Debt: If you owe money to anyone, your agent can negotiate with them, set up payment plans, or even settle debts.

The Responsibility of the Agent:

The agent must always act in your best interests. Agents cannot use your money for their own benefit. There are laws that create liability for the Agent if they act outside their authority or for their own benefit. Your agent should also record all transactions they complete on your behalf.  

Can the Agent Do Everything?

No way! There are some limits on what an agent cannot do. Agents cannot change your will or make medical decisions on your behalf (you sign a separate healthcare power of attorney for that!).

In Conclusion:

A DFPOA  is not a free-for-all. Your chosen agent has guidelines to follow and must always act with your best interests at heart. So, choose wisely and keep the lines of communication open. Your treasures deserve the best care!