Through a properly drafted power of attorney, adults can allow others to make decisions on their behalf. Powers of attorney often occupy a key place in many estate plans because they offer such great flexibility and are easily tailored to fit almost any situation. Unfortunately, there are some potential downsides to using powers of attorney that you need to consider before you create these powerful documents.
Coordinating Power of Attorney and Third Parties
When you create a power of attorney you give an agent the ability to act for you. The agent’s authority to make decisions on your behalf rests upon the specific powers you grant through the power of attorney document. As long as that document complies with New York law, you can give your agent almost any ability you choose.
However, just because the agent has the authority to act for you does not necessarily mean others will honor the document. For example, when you create a financial power of attorney, you often grant your agent the ability to interact with your bank and to make transactions on your behalf. Unfortunately, not all banks or third parties will recognize the power of attorney. Many third parties are worried about the potential liability they face if they recognize a power of attorney that is either fraudulently conveyed or has some other type of problem with it.
To avoid this potential hurdle, coordinating with third parties that you know your agent will interact with is often a good idea. Asking if the third party has any specific requirements or policies regarding powers of attorney is a good way to head off potential problems. Also, use of a properly drafted Living Trust often avoids the problems faced when trying to use a power of attorney.
Create Early, Update Often
A valid power of attorney rests on your ability to make knowing decisions. If you suffer from a mental condition, such as Alzheimer’s disease, or have some other impairment that prevents you from making choices, you cannot make a power of attorney.
For this reason, it’s essential to create a power of attorney when you are capable and in good health. Also, to reassure potential third parties that the power is still valid, you should take the time to update these documents regularly. Some people choose to update powers of attorney every six months, though a yearly updated is often sufficient.
Use Limits
You can choose to grant almost any decision-making authority you like when you create a power of attorney. However, limited powers of attorney that grant an agent only certain types of decision making abilities are often preferential to broader powers that grant the agent wide authority. Using limited powers of attorney can help protect you, while at the same time conveying to third parties that your agent is acting only in his or her authorized capacity.
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