What if you suddenly became incapacitated and could not make financial decisions for yourself? An accident, a health crisis, or struggles with cognitive function such as Alzheimer’s may force you to rely on someone else to take control of your financial life.  Even if you think these situations are unlikely, it is crucial to think about and plan for because we know that unexpected things happen all the time.

A financial power of attorney is defined as “a legal document an individual (the principal) can use to appoint someone (the agent) to act on his/her behalf regarding personal, financial and business matters”. A power of attorney for finance is needed regardless of how much or how little property you own to provide for the ongoing management of your financial affairs.

There are a few different types of Financial Powers of Attorney. If you already have a revocable living trust in place as part of your estate planning, you most likely have a durable power of attorney for finance.

A lawyer can help you determine which power of attorney you would need. Keep in mind that if you do not have a power of attorney and you become incapacitated, the court will appoint a guardian for your finances. It will be expensive, time-consuming and it may not be the person who you would have chosen.

Choosing the person to act as your agent is a serious decision and may impact your life and the lives of your family members. The person you choose may have broad responsibilities or a limited scope depending on how much power you want to give them.

Deciding who to trust for this very important role can be a difficult decision. You can name your spouse, adult child, other relative or friend to fulfill this role. Here are some criteria you may want to consider when choosing your financial power of attorney:

Trustworthy – This person is going to know a lot of personal information about you.  They will be in charge of your assets. Are they trustworthy, reliable, ethical, and prudent?

Location – Choose someone who resides close to you.  Financial decisions are more likely to be made timely and the person is likely to have a better understanding of state laws.

Financial Understanding – Depending upon the complexity of your estate, choose someone who has a good deal of common sense, is not afraid of handling finances, and has the ability to know when to ask a financial expert for help.

Willingness to Serve – Make sure that the person you select is not only able to serve but has the time to serve.

Sense of Loyalty – Choose someone who can perform the duties through any emotional stress or turmoil.  They should have your best interests at heart.  Remember, you are granting them a tremendous amount of power.

Age – Select someone who is younger than you.  This person may be handling the responsibilities for a long period of time.  Also, you will want someone whose own health is not declining to the point that they cannot care for the finances of either you or themselves.

A financial power of attorney is an important part of your estate plan. Don’t be caught without one!