When illness, age, or disability prevents a person from managing her finances, what are her family’s options? Family members such as a spouse, son, or daughter may want to pay that person’s bills or manage her investments. However, banks and other financial institutions will not recognize the family member’s ability to do so without first verifying that the family member possesses proper legal authority.
There are several different ways one person can obtain this kind of legal authority. A court-appointed guardian of property, for example, has the power to manage a disabled person’s finances. A court can also issue an order permitting a specific transaction (e.g., liquidating retirement accounts or establishing a trust) without appointing a guardian. However, both of these solutions require court involvement, which can be complicated and expensive. A far more cost-effective solution is for the person to appoint an agent (or “attorney-in-fact”) by executing a valid financial power of attorney while she is still competent.
A financial power of attorney is a document that gives one person (the “agent”) the power to act on behalf of the person who executes it (the “principal”). The principal decides what powers he wants to give his agent and under which circumstances the agent will be authorized to act. Principals commonly authorize their agents to do things like withdraw funds from the principal’s accounts to pay bills, buy and sell securities or other property on behalf of the principal, and pull funds out of the principal’s tax-deferred retirement accounts. Additionally, many principals choose to authorize their agents to make gifts or establish and fund trusts with the principal’s assets. These powers can be very useful in tax and government benefits planning.
Several important points to note about financial powers-of-attorney:
– In Maryland, any person over the age of 18 can create a valid power of attorney. As long as the principal has adequate mental capacity when he executes the power of attorney, he can create a “durable” power of attorney that remains in effect after he becomes incapacitated. However, the power of attorney only remains in effect while the principal is alive, and does not give the agent authority to act for the principal after she has died.
– The agent’s powers are limited to those expressly set forth in the financial power of attorney document. Therefore, it is important for that document to specifically set out what the agent can and cannot do.
– Even when an agent is authorized to make gifts out of the principal’s funds, he has a legal duty to act in the principal’s best interests. In other words, the agent should not give away the principal’s assets unless doing so would be somehow beneficial to the principal (for example, the gifts would decrease estate taxes or allow the principal to become eligible for means-tested government benefits programs).
In Maryland, a financial power of attorney must be in writing; signed by the principal (or by some other person for the principal, in the presence of the principal, and at the express direction of the principal); notarized, and witnessed by two or more adult witnesses. A qualified elder law or estate planning attorney can provide more specific information about creating or revising your financial power of attorney.
Frank, Frank & Scherr LLC focuses its practice on elder law, special needs trust planning, estate planning and estate administration,asset management, long term care, health care decisions, special needs trust, in Baltimore County, Baltimore City, Lutherville, Salisbury, Columbia, Howard , Anne Arundel, Harford, Prince George’s County, Montgomery County, MD. Keep up with us on Facebook, Twitter, Google+, and LinkedIn.