What is a Financial Power of Attorney?
A Financial Power of Attorney (FPOA) also known as a “property power of attorney” or a “durable power of attorney” is a document that gives a specified person power over your finances while you are living. The person creating the FPOA is the “principal” and the person who is given power over the principal’s finances is the “agent”.
When Does a Financial Power of Attorney Become Effective?
Option 1 – Springing Financial Power of Attorney
You can either have your FPOA become effective upon a future date or immediately. Financial powers of attorney that become effective upon a future date are often termed “springing powers of attorney” and can be triggered either upon:
- An uncertain date, such as incapacitation, or
- a specific date that you know you may be unavailable.
In Wisconsin, incapacitation is the legal term for when a health care power of attorney becomes effective and it means that an individual is “unable to receive and evaluate information effectively or to communicate decisions to such an extent that the individual lacks the capacity to manage his or her health care decisions.”[1] Therefore, a financial power of attorney that becomes effective upon incapacitation essentially allows someone to handle your finances while you are in the hospital or experiencing a medical event that rises to the level of incapacitation.
Creating a FPOA to be effective upon a specific date that you know you will be unavailable for is a tool often used for real estate closings, allowing someone to sign on your behalf. These types of Financial Powers of Attorney are often called “limited” as they are intended for one specific purpose and terminate after that purpose has been fulfilled.
Option 2 – Financial Power of Attorney That Becomes Effective Immediately
Alternatively, you can make your FPOA effective immediately. This is a great option for spouses who name each other as the other’s FPOA agent. It allows your spouse to handle a host of issues for you that can unexpectedly or expectedly arise. For example, your FPOA can give your spouse power to handle the filing of your income taxes for you if you were unable, or to even handle any government benefits you may be eligible for, such as Social Security and Medicare.
What Are the Pros and Cons of a Financial Power of Attorney?
The largest benefit of a FPOA is that having one in place can avoid court intervention. For example, suppose you end up in the hospital after a car accident and need some expensive surgeries, but to pay for the surgeries, you would benefit from leasing your home while you stay with a family member to recover. Having a FPOA in place would allow your agent to handle the leasing of your home for you (as long as your FPOA gives your agent the power to manage your real estate) and use the lease proceeds to continue paying your mortgage and avoid foreclosure.
Some other benefits of a FPOA include avoidance of delays in handling your finances (and the costly mistakes or interest charges that can follow) and overall convenience.
However, a FPOA can have some disadvantages if not thought out or misused. The largest risk of a FPOA is naming an agent who either mishandles or abuses your finances. While there are legal remedies available for a principal in these situations, beginning a court proceeding to pursue these remedies can be quite the headache. Another risk of a FPOA is failing to keep it up to date, which can result in a financial institution refusing to accept it.
While these risks exist, perhaps the biggest risk is failing to have a FPOA in place until its too late, as you can only have one done while you are of sound mind. The risk associated with naming an agent who mishandles or abuses your finances can be mitigated by choosing someone you trust and if that trust is ever extinguished, by revoking the document entirely.
The best practice when creating a FPOA is to have an attorney draft and explain the document to you. An attorney can cater the document to your specific situation and advise you on the best way to use the document. It is common practice for attorneys to offer FPOAs in conjunction with a will or trust plan, as your will or trust allows for the disbursement of your assets when you pass, whereas a FPOA allows for the flexibility of handling your assets while living.
[1] Wis. Stat. §155.01(8)
Schedule a consultation with Wynn at Law, LLC today to discuss the estate planning process
Whether you already have an estate plan in place in need of review, or would like to start from scratch, our attorneys are here to assist. Contact Wynn at Law, LLC today for a consultation at 262-725-0175 or visit our website’s contact page. Wynn at Law, LLC is based in Southern Wisconsin and has offices conveniently located in Salem, Delavan, and Lake Geneva, Wisconsin.
