Hello everyone and welcome to this month’s Ask the CFP® segment. This month’s question is, “Why are POAs important and how do they work?”
A power of attorney – or POA is a legally binding document that allows you to appoint someone to manage your affairs under specified conditions.
Typically, medical POAs are structured to go into effect if you become physically or mentally incapacitated, or if you are temporarily unable to make your own medical decisions. For this reason, they are often paired with a Health Care Directive that provides basic guidelines for the “life-prolonging” care you do or do not want to receive, as well as your wishes regarding being an organ donor.
While we typically think about medical POAs in regard to aging parents, it’s equally important that adults of any age have a medical POA. Even college students should consider having a POA and a HIPPA release on file with their university’s health services, as well as with their doctors. If there’s an emergency while your child is away at college, this will expedite your receiving medical information and making decisions on your child’s behalf. Remember, once your child is legally an adult, this is no longer a given.
A Financial POA allows someone you designate to help manage your finances, investments, and property. This power can be granted even if you are not incapacitated – for example, elderly parents frequently want their children to be able to help pay their bills and manage their finances. This does not replace a will or trust because the POA expires upon death.
When choosing your “attorneys-in-fact” for medical and financial matters, consider whether the people you are appointing would be willing and emotionally capable of carrying out your wishes. Financial POAs obviously need to be people you trust with your assets.
Consider designating a primary person, as well as two alternates. While it’s tempting to appoint your significant other or children, if you all frequently travel together, it’s a good idea to also include an alternate. Revisit your POA choices every few years, as it may be time to remove an aging parent, add a child who is now an adult, or replace a friend that you are no longer close to.
This is essential – make sure you tell the people you designate as your P-O-A and discuss your wishes with them! Additionally, give copies of the notarized POA to your doctors, attorney, and make sure your loved ones know where to find the documents in the event of an emergency.
If you are designated as someone’s POA, make sure you have straightforward conversations regularly, so you don’t have to make assumptions or guess their wishes.
Note that although durable POAs are most common, general POAs can also be granted for a defined amount of time and CEASE if you die or become physically or mentally incompetent.
Everyone needs a POA – including you! Creating one is not difficult, so don’t procrastinate!
If you have a question about this topic or have a question for a future video, please send it to kluetters@monetagroup.com. Thanks for watching and we’ll see you next month.
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