What Is Financial Power of Attorney?

Financial Power of Attorney Explained in Less Than 5 Minutes

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DEFINITION
Financial power of attorney (POA) is a legal document that enables a designated person to handle another person’s financial affairs.

Financial power of attorney (POA) is a legal document that enables a designated person to handle another person’s financial affairs.  

Granting someone power over your finances is a big step, as they can then access your bank accounts, manage credit lines, file your taxes, and more. Being so, it’s important that POA is only assigned to someone you trust when absolutely necessary. Further, it should only include the powers that are required for the situation. Learn more about how financial power of attorney works and how to protect yourself and your loved ones. 

Definition and Example of Financial Power of Attorney 

When an individual puts a financial power of attorney in place, they are permitting someone else to act on their behalf in financial matters. The person giving the power is called the “principal” while the person receiving the power is called the “agent” or “attorney-in-fact.” 

  • Acronym: Financial POA

An agent given financial power of attorney can then take actions such as:

  • Managing the principal’s retirement accounts
  • Processing transactions with their bank and credit cards
  • Filing and paying taxes
  • Managing benefits from Medicare and Social Security
  • Paying bills 
  • Buying a car or house
  • Withdrawing money from accounts 

A financial POA may be necessary for a variety of situations such as if a servicemember is deployed and wants their spouse to be able to do business for them. Further, it’s common in situations where an individual becomes incapacitated from health issues.

Your state’s attorney general office may provide financial POA forms. Check with your bank, too. 

How Financial Power of Attorney Works

If a person is in a situation where they want to assign financial power of attorney to someone they trust, they will need to find the power of attorney form that’s required by their state.

The form will typically ask who the principal is, who the agent is, and what powers are given. It may also ask how long the power of attorney will last. Also, you can designate a successor agent just in case the original agent dies. Finally, it must be notarized.

You don’t need a lawyer to prepare a power of attorney, but an attorney’s advice could be helpful when you’re crafting the terms of your financial POA. 

Once approved, the agent will have the ability to act according to the powers given in the legal document. If no end date is provided on the power of attorney form, it will typically end when the principal dies. However, if mentally competent, the principal can revoke it at any time with another signed legal document. 

But when is a financial power of attorney needed?

One example is if a woman is serving in the Navy and is deployed. However, she and her husband are trying to sell their house and buy a new one. All will likely be ready to go through while she is away so she assigns her husband financial power of attorney. As a result, he can sign the paperwork on her behalf.  

In another situation, a man gets diagnosed with dementia. In order to plan for his future incapacity, he puts a financial power of attorney in place naming his son as the agent. Further, the POA is “durable” which means that it will continue to be effective even when he is incapacitated.

The former example would be more of a short-term solution while the latter would be permanent. 

Revoking Power of Attorney

In general, you can revoke a power of attorney by putting the revocation in writing and giving it to your agent. Other measures you should consider are asking the agent for any POA documents they have, and sending the revocation notice to any financial institutions that received POA paperwork.

Check with your state’s attorney general to find any specifics or nuances about revoking a power of attorney.

An agent’s power of attorney can end if they die, resign, are removed by a court, become incapacitated, or are the principal’s spouse during a dissolution of marriage (unless otherwise noted in the financial POA).

Power of Attorney Abuse

POA abuse is, unfortunately, an issue. Therefore, it’s important to only use a POA when necessary. You should also choose someone you trust, and ensure others are aware of the situation and are verifying proper management.

General Power of Attorney vs. Limited Power of Attorney

If you are assigning financial power of attorney to someone, you can decide how much authority they will have over your affairs. General power of attorney gives the broadest powers, where the agent will be able to pretty much do anything you can do. On the other hand, limited or special power of attorney only authorizes the agent to handle specific affairs or situations. It’s generally best to limit the authority to the necessary minimum. 

Key Takeaways

  • Financial power of attorney lets an individual give another adult the ability to act on their behalf in financial matters. 
  • An agent with a financial power of attorney can access financial accounts, pay bills, initiate new credit accounts, file taxes, and more. 
  • It’s important to only issue financial power of attorney when necessary and to limit the powers to those that are required. 
  • Financial power of attorney is often used when service members are deployed or when people become incapacitated and can’t manage their finances. 

Article Sources

  1. Consumer Financial Protection Bureau. "What Is a Power of Attorney (POA)?" Accessed Dec. 17, 2021.

  2. Mass.gov. "Learn About the Power of Attorney." Accessed Dec. 17, 2021.

  3. The Florida Bar. "Consumer Pamphlet: Florida Power of Attorney," click on "When does a power of attorney terminate?" Accessed Dec. 17, 2021.