A power of attorney (POA) is an important part of ensuring an individual’s financial stability in the face of cognitive decline or incapacitation, and for creating an orderly and efficient transfer of financial decision-making authority to a trusted family member or friend. Do your clients have one?

Why Individuals Need a POA

As individuals age, the risk of cognitive decline or incapacitation grows more acute, which can result in situations where your clients are unable to make critical financial or health-related decisions.

Even in the case of married couples, a lack of clear financial decision-making authority can arise. For example, while married couples with joint ownership of assets share authority over those assets, some states do not permit the sale of certain jointly-owned property unless both parties sign the agreement.

Moreover, a spouse has no legal authority over assets owned solely by the other spouse. This can have the unfortunate consequence of a wife being unable to sell investments or property solely owned by her husband, even if the proceeds are needed to pay for his expensive medical treatments.

A POA Primer

A power of attorney is a legal instrument that permits an individual to perform certain acts or make certain decisions on behalf of another person. A POA can be created to make financial decisions, health care decisions or to care for children.

Some important terms to know:

• Agent—The person given authority by the POA.
• Principal—The person who executes a POA to give the Agent the power to act on Principal’s behalf.
• Durable Power of Attorney—A POA that continues to remain in effect after the Principal has become incapacitated.
• Limited or Special POA—A POA that restricts an Agent’s authority to specific actions or a limited time period.
• Springing POA—A POA that becomes effective upon a triggering event, such as incapacitation.

Relative to your clients, a springing, durable financial POA is an effective way for them to assign a family member or other trusted individual to make financial decisions on their behalf. Without one, should a client suffer a stroke or slide into dementia, family members may have to go to court to appoint a guardian or conservator, which can be both time consuming and expensive, not to mention the emotional dynamics it might ignite.

Clients might be reluctant to execute a financial POA because of misconceptions. It’s important to educate clients that an Agent cannot change the Principal’s will, make decisions after the Principal’s death, or change or transfer the POA to another person. Moreover, the Agent does have a fiduciary duty to act in the best interest of the Principal.

Consider making a POA part of your next client conversation.

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