By Lawrence Sprung
Planning for your financial future is just as important as making sure you are covered in the present too. The odds of becoming disabled or incapacitated at an early age are alarmingly high. According to the Council For Disability Awareness, roughly 1 in 4 of today’s 20 year olds will become disabled before they retire. Assuming you make it until retirement without being disabled, there is still a high likelihood that you will become incapacitated at some point in your life. In addition to dealing with your health, if found in one of these situations, how will you handle your bills, make investment decisions and handle other financial matters?
The power of attorney (also referred to as a POA) will allow a designated representative of your choosing to step into your shoes, as if they were you, and handle these matters on your behalf. You can also elect to limit the areas they can act, and those that they cannot. It is important that you choose this representative wisely as they have significant power and can essentially do anything you allow them to as if it were you. As an example, your power of attorney -if given the power- could withdraw money from your bank account, sell assets, or purchase items on your behalf. Now you can see why it is important that you select the right person.
Keep in mind that the POA documents may vary by state and we always recommend using a competent attorney to draft them for you so they will serve the purpose intended. This is a time that you would want to rely on your financial team to help you protect yourself from an unforeseen event.
There are also are two types of POA’s: durable and springing. Your goals and objectives will dictate which type would be best for you. A durable power of attorney is one that is in place the minute you execute the document, and therefore, the designated representative has the authority to act on your behalf immediately. The springing power of attorney is a bit more complicated. The idea behind the springing POA is that it will allow your designated representative to “spring” into your shoes when necessary. This will typically require some type of evaluation, by a medical doctor, certifying that the individual is incapacitated and the POA is warranted to “spring” into their shoes. This can, at times, create a hurdle in being able to plan and take care of the financial affairs of the incapacitated person. This added step can cause some vague areas that may be interpreted differently when looking to take care of the person’s affairs. We find that the durable power of attorney, practically speaking, is a better option and creates less headaches at the time the POA is needed.
There are many reasons for which you should have a power of attorney once you turn 18 years old. When you are 18 and are considered a legal adult, it is wise to designate a POA in case you become disabled, incapacitated or simply decide to travel internationally and need someone to act on your behalf in your absence. I know we have discussed incapacitation and disability, but think about when your child went to study abroad while in college. What if you needed to take care of some of their personal financial matters in their absence? This is where the POA would come in and allow you to transact whatever is needed on their behalf.
The POA is one of the most important and powerful documents that you should have. This planning tool has nothing to do with net worth or situation. Essentially, it is key for anyone over the age of 18 to have one in place and available if needed. You have the ability to update it over time so you are not locked into your choice of who you designate as your representative in perpetuity. As your life circumstances and relationships change, you can update this document as well. We would suggest that if you already have a power of attorney you should make sure that it still important to review it and make sure that you have it set up the way you want at this time.
Contact Mitlin Financial at (844) 4-MITLIN x12, if you are over the age of 18 and do not have a POA in place. We can introduce you to an attorney that can address your needs and protect you in the event that you need someone to act on your behalf.