What Should You Know about a Power of Attorney

~ By Gerald Rome, Colorado Securities Commissioner ~

Gerald Rome, Colorado Securities Commissioner

Gerald Rome, Securities Commissioner

No matter whether you’re 40 or 80, it may be a good idea for anyone with significant investments or retirement savings to have a Power of Attorney. A Power of Attorney is a legal document that grants authority to another person to make decisions on your behalf should you become mentally or physically incapacitated. This person can hold an incredible amount of power over your finances, and as such should be someone you completely trust, whether an adult child, close friend, or sibling. If you become physically or mentally incapacitated, it is crucial to know that whomever you designate will operate with your wishes and best interest in mind. Given the importance of this decision, experts recommend that you prepare in the following ways:

  • Be careful and take your time when choosing your POA agent.
    Unfortunately, we see cases where Power of Attorney documents are used in the commission of fraud or exploitation. As such, when considering whom to authorize for this responsibility, be sure that you take your time and choose wisely. The most important consideration for anyone you choose must be that they will understand and respect your financial goals and objectives. Be sure they are familiar with your short and long-term goals, including how you plan to support yourself and your family. They do not necessarily have to be a financial expert, but should be familiar with investing and able to understand and communicate with your financial professionals.If you are being pressured in any way to sign a power of attorney, this should be a red flag. Whether it is a family member or financial professional, anyone who is putting undue pressure on you or attempting to rush you into a decision likely may not have your best interests in mind. If you are dealing with a situation such as this, you can call the Division of Securities for help and further resources.
  • Be specific and thorough in how your POA documents are drawn up.
    There are a variety of types of Power of Attorney documents available, and it’s important to know exactly what the one you choose is outlining. Many experts recommend what’s called a “Durable POA,” which means that it will remain in effect if you become mentally incapacitated and can no longer legally change or revoke it. In the event of mental incapacitation, this type of document will make the responsibilities of your dedicated agent clear, particularly should this situation arise without much time to prepare.Be specific about what authority you are granting, for example, how long the authority will last, and if you still want control over some decisions should the document take immediate effect upon signing. Be sure to specify which accounts fall under the control of your agent, as confusion or ambiguity within the document makes it easier to challenge or disregard. Finally, consult a local attorney to be sure that you’ve covered the requirements for your state.
  • Know what to do in the event that you want/need to change your POA.
    Once a POA is created, don’t just sign it and forget about it. Sometimes things happen that require a change in the specifications or even the agent you initially designated. Finally, it’s always safe to have a backup plan in the event that your agent is unable or unwilling to perform their duty. Name at least one alternate successor, and consider naming a POA monitor – someone who can watch your POA and make sure it is operating as you desired.

Remember, a POA is a vital part of any estate plan, and something that adults of any age with financial assets or retirement savings should have in place.

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