Many things in life, both the good and the bad, come unexpectedly. While there are those we cannot control, we can mitigate their adverse consequences by preparing for the unexpected. For instance, we never know if we would get into an accident that would leave us permanently or temporarily disabled. But since we know this is a possibility, having a security blanket for our financial and legal affairs can help protect our assets if it does happen.
Making use of a power of attorney (POA)
For these types of concerns, individuals usually include a power of attorney (POA) in their estate plan. When creating a POA, the principal grants legal authorization to another person, referred to as the agent or attorney-in-fact, to manage their finances, business decisions, legal affairs or medical care in the event the principal becomes disabled and unable to make those decisions themselves.
Without a POA, a suddenly disabled individual may face unsecured assets, unpaid bills, poorly operated businesses and inadequate medical care, among others. With this estate planning tool, the principal can continue managing and protecting their life affairs through the help of another.
Limitations and drawbacks
POAs have several limitations and disadvantages. Some of these include, but are not limited, to the following:
- The attorney-in-fact’s authority ceases after the principal’s death.
- Since principals cannot oversee the management, some agents might abuse their authority and act against the principal’s intentions.
- Not all financial institutions recognize POAs for reasons of fraud and financial abuse.
These are some of the things an individual should note when weighing the pros and cons of creating a POA.
Determining whether you need a POA
At the end of the day, an individual’s goals will establish whether they would need a POA in their estate plan. Sometimes, the advantages outweigh the drawbacks if it benefits the individual more. A careful review of one’s finances and priorities and adequate legal help can be keys to creating a suitable estate plan.
