Creating a power of attorney is one of the most important things you can do to protect yourself should you become incapacitated. Taking the time to fill out and sign a financial power of attorney is not difficult or complicated, but it is crucial that you do it correctly. We will discuss some of the most common mistakes people make when creating a power of attorney and how you can avoid them.
Making Your Financial Agent Co-Owner of Your Bank AccountYour financial power of attorney, also known as your agent, will be able to write checks and pay bills from your bank account so you can stay up to date on payments. You will need to add your agent's name to your bank account. However, you should make sure that you do not unintentionally add your agent as a co-owner of your bank account.
For example, adding a name to your bank account can be two different things. It could mean authorizing the person to manage your account on your behalf. Or it could mean making the agent a joint owner with full authority to use the money in the account as if it was his or her own money. After you complete the financial power of attorney, you should take it to the bank and make it clear that you do not want the agent you have appointed to be your joint owner, but only a power of attorney.
Not Giving Enough AuthorityThinking about someone having control over your assets can be disconcerting. Understandably, people want to limit the power of their agent’s half. However, some disadvantages come with only giving your agent authority over the types of property you currently own. When you create a financial power returning, you can typically check or initial every kind of property you would like your agent to have authority over, including the following:
When you look at this list of properties, you will probably see some types of properties you do not own. You might not own commodities and options, for example. You may want to skip checking that option because it does not apply to you. What happens if you inherit some stocks from a relative or start a business a few years from now? Your agent will need the authority to handle whatever type of transactions come up, so the best approach is often to grant to your agent general authority over all property types.
Not Understanding Your Agent’s DutiesUnderstanding what a power of attorney is and how it works is crucial. We recommend discussing your power of attorney with an attorney who can answer your questions and help you understand the authority your agent will have. The agent you appoint will have the right to manage the properties you selected. Your agent will also have a legal duty to act in your best interest.
Your agent will need to follow all of the default rules unless your power of attorney document requires unique duties. For example, your agent may not need to keep detailed records of transactions, which can be required by law. You may benefit from removing this duty to make your agent's job easier, but we recommend discussing this with your attorney first. Understanding the default statutory rules for agents in North Carolina can help you and your agent in the future.
Not Giving Extra Authority to Your Agent When NecessaryMany people assume that a power of attorney will allow their agent to handle all their financial decisions. They may not realize that there are significant financial powers that a power of attorney does not include. If you appoint an agent, your agent will not have the authority to:
If you have questions about creating a power of attorney, one of the best things you can do is speak to an experienced estate planning lawyer. Contact Arnold & Smith, PLLC today to schedule your free initial consultation.