Power of Attorney
These three words sound scary! But did you know that a financial power of attorney is a crucial estate planning document which could save you and your loved ones years of grief? A power of attorney creates a relationship between two people. Under this relationship, you give power to another person. The “power giver” is known as the principal. The “power receiver” is known as the agent. Once the agent receives this power from you, the agent may perform certain financial acts on behalf of the principal. An agent may have the power to enter into contracts on behalf of the principal, pay the principal's bills, safeguard the principal's assets, and perform other financial tasks which the principal could perform.
“No matter what I do, no matter how hard I try, the ones I love will always be the ones who pay” Spiderman
So one might ask why would I ever give such a power to another person when I am perfectly capable of handling my financial affairs myself. Let me tell the tragic tale of Spiderman and Mary Jane. Spiderman fell in love with Mary Jane. The two love each other very much and decide to get married. Mary Jane understands Spiderman works in a very dangerous industry and puts his life on the line each day web slinging between buildings and fighting crime. While fighting crime one day, Spiderman takes an unfortunate fall from the Empire State building and bangs his head against the sidewalk. This tragic accident causes Spiderman to lose all ability to speak and think. Spiderman incurs substantial hospital bills. Prior to Spiderman's fall, Spiderman saved most of the money he earned while working as a pizza delivery man. Spiderman saved so much money, he could focus solely on fighting crime for the rest of his life. Spiderman keeps this money in a separate bank account in his own name, and Mary Jane knows of the accounts existence. However, the couple had very little financial assets which they held together jointly. Mary Jane needed to access Spiderman's account in order to pay for his hospital bills while he recuperates. Mary Jane has a problem though. She cannot access the account, because her name is not listed on the account. She must obtain a court order declaring her Spiderman's conservator to access the account.
A court ordered conservatorship comes at a substantial price. First, Mary Jane will have to pay an attorney to obtain the court order. An attorney could charge a substantial sum of money to represent Mary Jane in this proceeding. Another person could challenge Mary Jane's petition to the court to declare her Spiderman's conservator. Again this costs more money and will be deducted from the assets of Spiderman. Second, this court proceeding takes time. Spiderman may need immediate access to those funds. Other bills may come due while Spiderman suffers which Mary Jane does not have the money to pay. Third, if a court does declare Mary Jane as Spiderman's conservator, many jurisdictions require an annual accounting to the court pertaining to Spiderman's assets. This annual accounting not only requires Mary Jane's time, but may require her to spend more money on accountants and other professionals to provide an accurate accounting to the court. Ultimately, Mary Jane and Spiderman have created a situation where they will have to spend time and money to obtain a solution which could have been done for a small price at the outset.
So what is it Mary Jane and Spiderman should have done? You guessed it! A financial power of attorney, but not just any financial power of attorney, a durable financial power of attorney. A durable financial power of attorney differs from a general financial power of attorney by allowing the agent's powers to extend beyond the incapacity of the principal. In Mary Jane's situation, she could have accessed Spiderman's sole and separate account to pay his medical bills and other bills immediately upon his incapacity without ever having to go to court! Think of the time, effort, and money she just saved herself and Spiderman.
“With Great Power Comes Great Responsibility” — Spiderman
Agents do have great power to exercise on your behalf. This power can easily be abused. Therefore, it is imperative that you choose an agent which you know will act responsibly, and which you trust to act honestly and in your best interest. Spiderman trusts Mary Jane will act in his best interest, and their relationship as husband and wife is evidence of that trust. There are many additional factors to consider as well when selecting an agent for a financial power of attorney. You might consider whether an agent has acted prudently with their own finances, the agent's financial knowledge or expertise, or whether the agent will spend the time and effort to effectively safeguard your assets. These are only a few of the possible considerations you need to take into account when selecting an agent. There may be additional facts and circumstances surrounding your situation which may impact your decision.