As a financial planner, it’s part of my job to ask the question “What happens if you become incapacitated?” It’s not inconceivable that such a thing can occur, and the odds increase as you age. For a retiree especially, health concerns rise and mental sharpness may begin to dull. Which is why it’s imperative to address this now when you’ve had time to think your decision through rather than when it’s too late.

If you’re smart, you’ll plan ahead for such an eventuality, and one of the main tools you’ll use is the Power of Attorney.

Reasons for Naming a Power of Attorney

A Power of Attorney is generally appointed either for a specific purpose (for example, to sign a document when you cannot be present to sign) or as protection in case you become incapacitated or incompetent. If you should become incapacitated or incompetent and not have a POA, no one can legally handle your financial and legal affairs. If a POA has been appointed, however, there will be no lapse in your ability to control finances or legal matters, as the agent will be able to act on your behalf.

The agent you name as your POA can be responsible for:

• Bill paying
• Banking transactions
• Investments, including the management or sale of any stocks or bonds
• Managing or selling real estate
• Managing insurance, including overseeing the payment of any premiums
• Preparing and filing tax returns

Types of Power of Attorney

There are three types of power of attorney. The main differences between these POAs is when they go into effect and when they expire.

Non-Durable Power of Attorney, which goes into effect upon signing and expires if/when you are declared mentally incompetent

Durable Power of Attorney (DPOA), which goes into effect upon signing and expires when you die

Springing Power of Attorney, which goes into effect upon a specific event, date, or condition (such as a declaration of mental incompetence) and expires when you die

What Type of POA do you need?

For the purposes of estate planning and end-of-life planning, a Durable Power of Attorney is generally recommended, as the POA immediately goes into effect upon signing and remains in effect even if you become incompetent or incapacitated. With a DPOA, there is no question about when the POA becomes effective (as there often is with a Springing POA) and the agent may act on your behalf if you become incompetent or incapacitated (which is not the case with a Non-Durable POA).

Who should you Name?

Since your Power of Attorney (POA) potentially will be handling your legal and financial affairs, you’ll want to choose someone who either has some experience in these fields or has the necessary qualities to handle the decisions.

A Power of Attorney should be a person with the following characteristics:

• Attention to detail
• An understanding of his or her duties, and a commitment to taking those duties seriously
• An understanding of finances and perhaps business
• The ability to collaborate with attorneys, accountants, and other parties, if necessary

In addition, a power of attorney should be someone you trust, who you believe understands your values and will do his or her best to act in your best financial and legal interest.

If you have extensive business interests that the POA might become responsible for, it may help if the person you’re appointing has an understanding of your business interests as well as the finances and financial structures behind those businesses.

Finding the Right Person for the Job

If you’re considering naming someone as your POA but aren’t sure if he or she is the right person, it might be helpful to have a conversation with the person you're considering to discuss the duties and responsibilities of the position, as well as the scope of your financial and legal affairs. This may help to determine if the person you’re considering to be your POA is the right person for the job.