Savvy incompetency planning usually includes the execution of a power of attorney, a document that names an agent who can sign checks, pay bills, and make other financial decisions on your behalf. Instead of a “regular” power of attorney, you’ll likely prefer:
- Durable powers. Such documents remain in effect if you become incapacitated.
- Springing powers. These durable powers of attorney will go into effect only if one or more doctors state that you are incompetent or that you cannot perform some “activities of daily living,” such as being able to get dressed and go to the bathroom.
Although some legal fees are involved in executing a power of attorney, those costs likely will be modest. A durable power of attorney must be notarized but there’s no need to have it recorded anywhere. You get to choose the person you want to handle your affairs in case of incapacity. A springing power won’t go into effect as long as you are competent.
However, you need to have absolute trust in the person you name as your agent. Generally, your oldest child living nearby will be the best choice. Some financial institutions won’t accept your power of attorney because they require the use of their own forms. You should send a copy of your power to each of your banks, brokers, mutual funds, etc., to see if there will be any problem. Some companies won’t recognize old powers. You should put an expiration date on the document and update it every year or two, in keeping with your current wishes.