The Power of Power of Attorney
Some day your parents may no longer be able to handle their finances on their own. Before that day comes, you need to have the right legal documents to help them manage their money when they can't.
The most important document you will need is power of attorney. It's like the key to a car -- without it, you can't drive, says Stephen J. Silverberg, an elder law attorney in Roslyn Heights, N.Y., and immediate past president of the National Academy of Elder Law Attorneys (NAELA). However, unlike taking away the car keys when your parent should no longer be driving, you can't wait until mom or dad doesn't have the mental capacity to handle financial transactions to get this document. For a power of attorney to be valid, your parent must be competent when he or she signs it.
Power of attorney lets you handle any financial transaction for your parents -- from signing checks to selling their home. Make sure you have durable power of attorney, which takes effect immediately. A springing power of attorney will not take effect until your parent is deemed incompetent.
If you have siblings, all of you can be given power of attorney, and the document can specify whether you must act together or independently. To prevent abuse by any one child, the document can build in oversight by requiring the power of attorney to answer to a third party. It also can limit powers to prevent you (and your siblings) from changing your parents' wills or beneficiary designations on life insurance policies. See Prevent Power of Attorney Abuse for more information.
The power of attorney should conform to the laws of the state (or states, if your parents divide their time between two) where your parents live. Silverberg recommends hiring an attorney who specializes in elder law to draft this document -- not someone who will just use a standard form that might not provide you with all the powers you need and the protections your parents deserve. You can search for an elder law attorney where you live on the NAELA Web site. The site also has questions to ask when selecting an elder law attorney.
To be clear, a power of attorney document is not a golden ticket. Many financial institutions and brokerages have their own forms that must be signed before you can gain access to your family member’s accounts. Also, be sure to give the institutions a copy (not original) of the power of attorney document soon after it is signed. If you wait years to do this, the institution may ask you to get your attorney to recertify the document (see Powerless Power of Attorney).
To learn more about managing your parents' finances when they can't, see my upcoming article in the October issue of Kiplinger's Personal Finance magazine.