Power of Attorney: Good Idea?
Is it a good idea to give control of your finances to someone else through a power of attorney? Maybe. Or maybe not. The key is that you can be flexible over how much autonomy you give up.
It's foolish to sign away complete authority to someone who may or may not be trustworthy. It's equally foolish to refuse to consider a power of attorney in circumstances where it could serve you well.
In a recent case where a power of attorney perhaps was given too easily, best-selling author Patricia Cornwell charged a financial management firm with negligence, alleging that it cost her millions of dollars. She had hired the firm to take care of her financial affairs, authorizing its manager through a power of attorney to make decisions on her behalf.
At the other extreme, one of my clients took care of financial matters for her elderly father, who had Alzheimer's. Yet when she mentioned a power of attorney, her father refused to sign one. Even with his memory failing, he had retained the idea that giving control of his money to someone else was a really bad idea.
People don't necessarily realize that a power of attorney can offer a whole range of options between "go ahead and do everything" and "absolutely not." There are many situations where a limited power of attorney might be useful. Such a document authorizes someone to act on your behalf only for a one narrow purpose. It spells out the boundaries of that person's authority and often expires after a given period.
One common use for a limited power of attorney is to facilitate the sale of a piece of real estate or other property from a distance. If you have to move to Ohio but your house back in Nebraska hasn't sold yet, you could authorize a trusted friend, relative or financial professional to handle the transaction for you.
Another way to use a limited power of attorney is when someone takes care of your affairs while you are temporarily unavailable or incapable. Suppose you undergo treatment for a serious illness or injury, or you take a three-month trip around the world. You could authorize a family member to pay your bills and make other necessary decisions. The authority you grant could be as broad or narrow as you deem appropriate.
Many couples execute durable powers of attorney granting their spouses or children broad authority to act for them if they become disabled. This now is a common and helpful component of retirement/old age planning.
Yet I see far fewer people using limited powers of attorney. One reason may be the expense and hassle. You don't necessarily want to hire an attorney to draw up a complex document every time you go on vacation.
An easier and more affordable alternative is online. Several sites offer legal forms at reasonable rates. Just keep in mind these are "one size fits all." Be sure the forms are valid in your state and that you understand what you're signing.
Another option is to see if your lawyer would draft one document as a template, including language to cover various situations. Then you could adapt it as needed for specific purposes.
Whatever the circumstances, remember that a power of attorney is a useful but potentially dangerous tool. It's a bit like a chainsaw – an expert can make beautiful sculpture with it, but an amateur can cut someone's leg off. Before you put that much power into anyone's hands, make sure you can trust the person to use it well.
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Rick Kahler, CFP, is president of Kahler Financial Group in Rapid City, S.D.
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