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How Financial Power of Attorney Differs From Ordinary Power Of Attorney In Estate Planning

The Marble Team

How Financial Power of Attorney Differs From Ordinary Power Of Attorney In Estate Planning

Estate Planning
| 5 min
7 minutes

Most people are familiar with the concept of power of attorney, where you hand over control of your affairs to a trusted partner (termed an agent). Used correctly, power of attorney is a practical, functional, and pragmatic solution.

There are two main scenarios where this legal power is used. With a financial power of attorney, you may give a trusted contact immediate control over certain fiscal matters. Ordinary power of attorney in estate planning often has a greater scope (covering medical and financial matters) but only applies under a given set of circumstances.

Because you’re giving so much influence over your personal affairs to another person, it’s vital to ensure you get it right when you’re drawing up a power of attorney. There are some critical differences between the two scenarios mentioned above, so we’ve put together this useful guide on the subject. 

As well as comparing the two, we’ll outline some vital precautions and safeguards, explain the benefits of doing the groundwork now, and underline the importance of seeking sound legal advice. Read on to learn more.


Why You Need a Power of Attorney

If you own property or have a bank account, you should have power of attorney. That’s a fairly sweeping statement to make but consider this; if something happened to you, like a severe accident that left you struggling physically or mentally, or a degenerative disease like Alzheimer’s struck you, how would you and your family cope? And not just financially, but also around decisions on your health and wellbeing.

Perhaps you’re reaching a certain age and are concerned about how you’ll manage when your faculties start to fade. Or, maybe you're about to take up a dangerous overseas military posting, and you’re worried about an injury that leaves you incapacitated. With a power of attorney in place, you can rest easy. Just as importantly, so can your family.

But a power of attorney isn’t just about peace of mind and security for your family. You can also use a financial power of attorney to help you manage your personal and business portfolio. 


Your Affairs Will Be Looked After Whatever Happens

There’s great reassurance in knowing that everything will be looked after, regardless of what happens. You can also take comfort from knowing that your planning will make caring for you a whole lot easier for your loved ones.


You Can Plan In Advance

By preparing now, you make sure that all eventualities are covered and that what happens is what you want to occur. In particular, by outlining your precise wishes, you can save your loved ones the stress and anguish of having to make tough decisions about your medical care.


You’re Leaving The Important Stuff to Someone You Can Trust

Unless you have power of attorney in place for medical matters, key decisions on your future might be made by doctors, lawyers, or judges who don’t know you. With power of attorney, you can rest assured that all the essential matters are handled by someone you know and trust. The same applies to your financial interests.


Different Types & Important Considerations

There are four different types of power of attorney:

  1. General: Appropriate when you want someone to manage your affairs for you (just remember to specify the validity should you subsequently become incapacitated)
  2. Limited: As the name suggests, suitable where you wish to limit the powers of the agent - thus, you could allow them to deposit but not withdraw funds in your bank account
  3. Durable: Unless you specify otherwise, this power of attorney is considered to be ongoing, even if you’re later declared to be of unsound mind and body
  4. Medical: Allows the agent to make healthcare decisions on your behalf, such as whether a life-support machine should be switched off

Legislation differs from state to state, so make sure you follow the local rules and update your paperwork if you move. Also, you may consider choosing someone younger than you as your agent: if you’re worried about growing old and becoming ill, maybe the same could happen to a named agent who’s your spouse or an old friend. Finally, and most important of all, don’t put it off: once a person’s already incapacitated, it’s too late to get them to sign over any powers.


The Key Difference

The key difference between a financial and ordinary power of attorney is that the former typically begins once the document is signed. In contrast, the latter is only activated under certain conditions - and indeed may never be used.


Financial Power of Attorney

A financial power of attorney is useful for anyone that’s going abroad for a long time or has an extensive financial or property portfolio. You can constrain the scope as you wish and also impose specific time limits.


Typical Power of Attorney

When people make a power of attorney part of their estate planning, they’ll often include what’s called a “springing” arrangement. This means that the power is only activated under a precise set of conditions; for example, when the person is declared to be of unsound mind and body or reaches a certain age.


Get Legal Representation For Your Power of Attorney Needs

A power of attorney agreement is one of the essential documents you’ll sign. You could take a chance and use an online form, or you could work with a family law attorney and make sure you have all your bases covered. A family law lawyer is also ideally placed to advise you on related areas of estate planning, such as wills, living wills, trusts, probate, and final arrangements.

With the best family law attorney at your side, you’ll ensure that your agreement conforms to state guidelines, is legally watertight and fit for all intended purposes, and meets your exact needs. Guaranteeing that security is well worth the expenditure.


Bottom Line

Don’t wait until it’s too late. Make sure you draw up a power of attorney agreement now with a dedicated family law lawyer to secure your peace of mind for the future. The knowledgeable team at Marble is on hand to answer any questions you might have, taking a fresh and innovative approach to estate planning compared to other law firms. Contact us now for a free initial consultation.

 


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