Establishing power of attorney with a trusted relative, business associate, or financial professional can be helpful if a situation arises where you aren’t able to care for yourself, such as the onset of a serious illness or following a serious car accident.
Establishing power of attorney (POA) allows another to act as your agent, proxy, or attorney-in-fact and handle important financial matters or make critical medical decisions on your behalf. Handing over the keys to your finances and medical matters to another is a significant commitment, though, and you may come to realize that you need to make other arrangements or go in a different direction.
As grantor or principal of the POA, you are free to change or revoke power of attorney at any time, provided you are capable of making sound decisions. Let’s look at how the process works.
How to Set up Power of Attorney
It’s not complicated or difficult to establish power of attorney. Each state has slightly different rules for setting up POA, but typically, all you need to do is download an online POA template, fill it out in front of a few witnesses, and have the document notarized. You may want to engage legal counsel to fine-tune the language of the POA to best meet your needs and ensure that the process adheres to the laws in your state.
There are four different kinds of powers of attorney, and each functions a bit differently:
- General or limited POA. A general power of attorney remains in place until you no longer can make decisions for yourself. Assigning general POA is common in real estate deals where an agent signs documents on another’s behalf, as well as for brokerage accounts where money managers make financial decisions for their clients.
- Durable POA. A durable power of attorney remains active until the grantor or principal passes or revokes the POA.
- Medical POA. This type of POA allows your agent to make medical decisions once you are unable to make them for yourself.
- Emergency or springing. This POA is triggered only when a specific event occurs, such as an accident that leaves you unable to care for yourself.
There can be a great deal of risk in assigning power of attorney to another. Your agent may have unrestricted access to your finances, and history has proven that money can be a great corrupter. Let’s look at how to cancel POA.
How to Revoke Power of Attorney
The grantor or creator of the power of attorney document is the only one who can cancel or make changes to it.
In order to revoke POA, you’ll have to complete a Notice of Revocation. This document can be found at any number of free legal websites. Once completed, signed, and notarized, the document cancels any power of attorney arrangements. Typically, this document doesn’t have to be filed with any county government agency; rather, it should be distributed to all pertinent parties and agents to inform them that the POA has been revoked. A good method of disseminating the Notice of Revocation is through certified mail and requesting a return receipt to show proof of delivery.
If you created a POA to have your agent complete a real estate deal, you may have to file the revocation notice with the county clerk’s office to ensure that county real estate records reflect the cancellation so the agent cannot make any additional sales, purchases, or convey real property on your behalf.
Closing Thoughts
Granting power of attorney requires a great deal of trust. You are authorizing an agent to
make important financial and medical decisions on your behalf. Your attorney-in-fact is required to act in your best interests, but overreach, abuse, or self-dealing of the POA can occur and require its revocation. Your situation also may change and necessitate that you cancel the POA arrangement.
In order to revoke a POA, you must demonstrate that you are of sound mind to do so, and complete a Notice of Revocation. Once the document is witnessed and notarized, it’s legally binding and your agent can no longer make decisions on your behalf.
This material is for general information and educational purposes only. Information is based on data gathered from what we believe are reliable sources. It is not guaranteed as to accuracy, does not purport to be complete and is not intended to be used as a primary basis for investment decisions. It should also not be construed as advice meeting the particular investment needs of any investor.
Realized does not provide tax or legal advice. This material is not a substitute for seeking the advice of a qualified professional for your individual situation.
