Your last will and testament. Your trust. Which is the most important document in your estate plan? The answer is neither. In most cases, the most important document in your estate plan is a well-drafted financial power of attorney.
What is a Financial Power of Attorney?
A financial power of attorney is a document that gives another individual, called the “agent,” the authority to manage your financial affairs. The person granting this authority is called the “principal.”
Power of attorney does not eliminate the principal’s ability to manage his/her finances. It simply gives the agent the authority to act as well. However, a power of attorney truly becomes important if the principal becomes either mentally or physically incapacitated to the point that he/she is no longer able to make their own financial decisions.
As long as the principal had a well-drafted financial power of attorney in place, the agent will be able to step in immediately and make financial decisions without any court involvement. If you do not have a power of attorney in place, you should meet with an attorney to discuss preparing one for you. Even if you do have a power of attorney in place, you should consider having it reviewed by an experienced estate planning attorney. This will help ensure the document has everything it needs to be effective.
When does a Power of Attorney go into effect?
A financial power of attorney typically goes into effect immediately upon the execution of the document, even if the principal is still competent and able to manage their own finances.
Can a Financial Power of Attorney be Revoked or Replaced?
Simply put, yes. As long as the principal is still competent, a power of attorney can be revoked or replaced.
What happens if an Individual becomes incapacitated and does not have a Well-Drafted Power of Attorney?
Without a well-drafted power of attorney in place, an individual’s family will have to go through formal court proceedings in order to manage the disabled individual’s finances. Even a simple guardianship case will usually result in several thousand dollars in legal fees. And that is just the beginning. In Maryland, once a guardianship is in place, the court continues to supervise everything. A guardian will need to obtain court permission before undertaking many actions and will be required to file an inventory and annual accountings with the court to report all activities. This can be a very time consuming and costly process.
Fortunately, all of this can be avoided with a well-drafted financial power of attorney.
If you have any questions about our blog, “A Power of Attorney: The Most Important Document in Your Estate Plan,” please contact Offit Kurman elder law attorney Joseph Mathis at 301.575.0351 or email@example.com. Mr. Mathis focuses his practice in counseling and assisting individuals with Elder Care Planning, Estate Planning, and Estate Administration.
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