A power of attorney is a document where one person (the principal) names another (the agent), who can act for the principal in financial transactions. Naturally, it’s vital to name someone you can trust as your agent. If there is no one individual you trust absolutely, you can name two co-agents and have the document say that they both must sign off on any transactions.
A general power of attorney allows your agent to do virtually anything that you could do with your money.
A special or limited power of attorney is valid only for a specified purpose, such as closing on a house or using one particular bank account.
A durable power of attorney remains in effect even if the principal becomes incompetent.
A springing power of attorney takes effect only under certain conditions, such as a doctor signing a letter attesting that the principal has become incapacitated.
A health care power of attorney lets you appoint someone to make health care decisions for you if you’re unable to make them yourself. The ideal agent is someone knowledgeable about health care, not necessarily the agent you’d choose for another type of power of attorney.
If the goal is to have someone to help manage your finances, you should consider whether to use a joint account or a power of attorney.
Advantages of joint accounts: They are easy and inexpensive to create. A power of attorney may involve some time and meaningful expense.
Moreover, a power of attorney may have to be signed and witnessed, according to state law. You should draft a new power of attorney every few years. People may be reluctant to accept a document you signed this year ten years from now.
Advantages of a power of attorney: Your agent has a legal obligation to act on your behalf. If he or she taps your accounts for personal gain, charges may be brought. Thus, there may be more safety in a power of attorney than in joint ownership.