Powers of attorney are legal documents authorizing specific people to act on behalf of the person drafting them. The individual creating powers of attorney is the principal, and the person empowered to act on their behalf is the agent or attorney-in-fact.
Assigning medical power of attorney often involves creating an advance health care directive. People can also establish separate financial powers of attorney that take effect in the event of their incapacitation. Financial powers of attorney can grant another person the right to access financial accounts, pay bills and manage assets.
How can authorizing another person to handle financial matters protect the principal drafting the documents?
Ensuring fulfillment of financial obligations
During an incapacitating emergency, an individual may not be able to pay their mortgage or other bills. They could be at risk of damage to their credit score. In fact, they could be vulnerable to vehicle repossession, creditor lawsuits, eviction and foreclosure. Financial powers of attorney help ensure that there is someone responsible to pay bills and communicate with creditors until the incapacitated individual recovers.
Managing valuable assets
Paying bills is only one recurring financial responsibility. People may also need to make decisions about their investments or manage their businesses. Financial powers of attorney can help ensure that there is a competent person capable of maintaining assets until the principal’s condition improves. Otherwise, their assets could depreciate in value during their incapacitation.
Establishing financial powers of attorney can help protect people from economic hardship if they experience some kind of personal emergency. Those with recurring financial obligations and complex assets may need support if they cannot manage their own affairs, and that’s okay.