What Is a Financial Power of Attorney?
A power of attorney is simply a legal tool that permits a party or entity to transact business and affairs on your behalf. There are several types of powers of attorney. For example, there is a financial power of attorney. There is also a medical form of a power of attorney. The two types of powers of attorney are usually kept distinct and most advisers and professionals in the trusts and estates field warn against including medical information in a financial power of attorney.
Financial Power of Attorney
A financial power of attorney can take one of two forms:
- durable power of attorney
- nondurable power of attorney
The two forms of financial powers of attorney are quite different and distinct. Accordingly, it is important to recognize the situations in which it is appropriate to have each one. For example, many people consider creating a durable power of attorney when they become chronically or terminally ill. Durable powers of attorney are also particularly appropriate when there is a future date upon which it may be foreseeable that an illness can become disruptive to the life or lives of another or others.
Durable Power of Attorney
A durable power of attorney is a legal document that allows another to act on your behalf until the tool is revoked or upon your passing. The tool can take effect immediately. For those who struggle with chronic, debilitating illnesses or who might face future incapacity (for example, a nursing home), a durable power of attorney vehicle is an appropriate device for use in these unique situations and circumstances.
Durable powers of attorney can be prepared so that they can be put into place at a future date, as well. They do not have to take immediate effect. For a party who faces a chronic or debilitating illness in the future, this device may be best applicable. Often, a medical doctor or other type of authority figure will help select the time when an individual is no longer able and competent to manage his or her own legal and business affairs on his or her own. At that future point in time, the power of attorney will take effect and permit the agent to manage the party's financial affairs. Because this type of power of attorney springs into effect at a future date, it is often referred to as a "springing" power of attorney.
Nondurable Power of Attorney
Nondurable powers of attorney are often used for limited transactions and situations. If there is a contemplated stock trade or similar single transaction, a nondurable power of attorney would be particularly appropriate. This type of power of attorney gives the grant of authority to another for one or few occurrence(s). Another example of a nondurable power of attorney scenario arises when a party travels far away from home, such as to a foreign country, and is not able to conduct their business or financial affairs at home during that limited period of travel. This type of power of attorney is sometimes called a special power of attorney.