People have a variety of reasons for putting off estate planning. Some people avoid estate planning because they do not want to think about death, aging or the possibility of incapacitation. Other people put off estate planning because they believe common misconceptions about various estate planning documents.
A durable financial power of attorney is one type of estate planning document people often have misconceptions about. In general, this document allows you to give someone of your choice the legal power to manage your financial matters on your behalf. With a durable power of attorney, this power usually starts when you sign the document, continues if you become incapacitated, and ends when you revoke it or pass away.
The person you choose to manage your affairs is called your agent or your attorney-in-fact. This person is typically responsible for:
- Completing your banking transactions
- Paying your bills
- Paying your taxes
- Managing your real estate
- Investing on your behalf
- Selling your assets
- Hiring someone to represent you
Will my agent be able to do whatever he or she wants with my money?
One common misconception about financial power of attorney is the belief that it will allow the agent to do as he or she pleases with the principal’s money and assets. However, agents are fiduciaries, which means that they are legally responsible for following your wishes and acting in your best interests when your wishes are not specified. Your agent cannot legally act in his or her own best interest instead of yours. Although you can set limitations on your agent’s powers, these limitations could leave certain financial matters neglected if you become incapacitated.
Shouldn’t I wait to sign a power of attorney until I am legally incompetent?
Another common misconception is that someone can sign a power of attorney when he or she becomes incompetent. However, as with most legal documents, you must be of sound mind when you sign a power of attorney. If you do not already have a durable power of attorney in place and you become incompetent, your loved ones may be forced to seek conservatorship, which can be a costly and time consuming process.
What if I do not want to lose my rights to make decisions?
A third common misconception is that signing a power of attorney will take away your rights to make decisions and manage your own finances. However, a power of attorney does not take away these rights. Only a guardianship or conservatorship proceeding can do that.
Because a power of attorney does not take away your rights, it can be beneficial to create your durable financial power of attorney before you need it. This allows you to manage your finances alongside your agent and teach this person how you want your affairs managed. That way, if something happens to you, your agent is already comfortable and familiar with his or her responsibilities.
In general, it is better to begin estate planning early and adjust your estate plan as your life changes. If you are ready to begin your estate plan, don’t let common misconceptions prevent you from getting started.