Why do I need a power of attorney? A power of attorney, sometimes called a durable power of attorney, is a very important part of an estate plan. It’s is a legal document that gives someone you fully trust the legal authority to act on your behalf in making financial decisions for you when you aren’t able to do so for yourself. Usually a power of attorney becomes effective the day that you sign it, and it remains in effect until you revoke it or until you die.
You could make what they call a “springing power of attorney” that doesn’t become effective unless you become disabled or incapacitated, but that could possibly complicate things when/if your family were to really need to be able to use that document. Generally speaking, if something were to happen to you the courts might have to get involved just to decide whether or not you are legally incapacitated. That of course would take up precious time, not to mention additional financial resources.
So why do I need a power of attorney as part of my estate plan?
If you were to become incapacitated, i.e. unable to make decisions for yourself, due to an accident or illness, then the people that care about you will not be able to take care of many of your important financial affairs such as paying your bills and managing your investments. Banks and other financial institutions rightly won’t let just anyone come in and start moving your money around without proper legal permissions in place, even if that person is immediate family.
Now if you were to become incapacitated and not have a power of attorney in place, there is a work-around. Someone in your family or a close friend could go through the court system to get a court-ordered guardianship, thereby giving them the authority to take care of your financial matters. However, much like dying without a will, guardianships can be difficult to work, time consuming and expensive.