One Document Every Adult Should Have- February 10, 2008
Stewart H. Welch III, CFP, AEP
Founder, The Welch Group, LLC
February 10, 2008
One Document Every Adult Should Have
February 10, 2008
Picture this. You handle the family’s finances and pay all the family bills. In addition, you own a small business. Among the assets held solely in your name are bank accounts, investment accounts and real estate. You are in control and life is good until tragedy strikes. You’re in an automobile accident which leaves you in a coma. Financial decisions need to be made; checks need to be signed but you are unable to do so. What is going to happen? Someone, typically a family member, is going to have to hire an attorney, go to court and get a Power of Attorney that will permit him or her to act on your behalf….a potentially expensive and time consuming task. A better solution is for you to be “proactive” and have your attorney draw a Power of Attorney before you need one.
A Power of Attorney is a vital document for every adult. This document allows you to appoint another person as your “attorney-in-fact,” which gives that person the authority to act on your behalf in legal matters should you not have the capacity to do so. A power of attorney can be drafted in several forms:
Springing Power of Attorney. This document only becomes effective under certain conditions, usually due to incapacity. One significant disadvantage of the springing power of attorney is that when someone attempts to use it on your behalf, he or she may be required to “prove” that you are actually incompetent. This can create both inconvenience and significant delays.
General Power of Attorney. Here, you give your attorney-in-fact the authority to act on your behalf at anytime. However, if you become incapacitated, this document is null and void.
General and Durable Power of Attorney. This document allows your attorney-in-fact to continue acting on your behalf in the event of your incapacity.
Limited Power of Attorney. With a limited power of attorney you appoint someone to act on your behalf only under very specific circumstances. One possible reason might involve the signing of a specific legal agreement by your attorney-in-fact while you are out of the country.
What you need to do now. First, you need to decide which Power of Attorney is most appropriate for your circumstances. Then you need to decide whom you would appoint as your attorney-in-fact. If you are married, a natural choice might be your spouse. But you should also have at least one successor attorney-in-fact. It should be noted that if you die, any and all Power of Attorney documents you have executed become null and void. Also, you should redo this document every four to five years. Many institutions such as banks are reluctant to accept a Power of Attorney document that is older than that. These are powerful legal instruments and care should be taken to keep up with them.
While you can get Power of Attorney standardized documents through bookstores and various software programs, I recommend that you have it drawn up by an attorney or at least reviewed by one. Most attorneys will do this for a modest charge. Your attorney will make sure that the document conforms to