Choosing a financial power of attorney (POA) is a serious matter that should not be entered into lightly. As the saying going, with great power comes great responsibility. But what qualities make a person a good POA? What, exactly, does power of attorney mean, and what are the different types?

What Is Power of Attorney (POA)?

Assigning someone as Financial Power of Attorney means that they are legally allowed to handle your financial matters in the event that you are not able to (for example, if you have a medical emergency). The degree and the timing that the financial POA takes place depends upon the type of Power of Attorney you sign – we’ll discuss the different types of POA below.

Types of Financial Power of Attorney

There are three basic types of financial power of attorney. The first is the normal or conventional power of attorney. This type begins the moment you sign it and lasts until you are mentally incapable or incapacitated.

The second type is a durable power of attorney. This form of POA also begins the moment you sign it, but it lasts your entire lifetime – with the caveat that you can cancel it at anytime.

The third type is a springing power of attorney. As the name suggests, a springing POA is triggered when a specific life event occurs, such as a medical emergency or if you ever become incapacitated.

No matter what type of power of attorney you have anointed someone with, those powers and the ability to manage your finances ends upon your death.

Benefits and Responsibilities of Power of Attorney

When you assign someone as financial power of attorney, you can pick and choose which assets and powers they have. It is important to lay out ever aspect of your POA – a licensed CPA or certified public accountant can help you decide which abilities should be in your POA, as well as which type is beneficial to your situation.

Typical aspects of your finances you can give someone access to include investments (stocks, bonds, mutual funds), property, taxes, small business operations, day-to-day expenses, bill payment, insurance, bank transactions, access to any property (including automobiles and valuables), and even the right to hire level representation on your behalf.

You can assign a person of all of these responsibilities or a few of them. In addition, you can assigned multiple people to handle different areas of your finances as well.

Choosing a Power of Attorney

Your first instinct may be to assign a family member as your POA, and while this is not a bad idea, there are some factors to consider. For starters, trust is everything. Whoever you choose must be a responsible person that has you (and your family’s) best interest at heart.

Since you are having the person handle your financial matters, someone who is savvy with finances is important as well. If you are letting them handle your stocks, for instance, they should understand how the stock market works. If you are asking them to make small business owner (SBO) decisions when you are incapacitated, they need to understand what you do and how your company operates.

Difference Between a Financial POA and Medical POA

You may be asking yourself what is the difference between a financial power of attorney and a medical power of attorney. While you can certainly have the same person be both your Financial and Medical POA, having separate people is always a wise choice. In essence, a medical POA handles your medical situation and is responsible for making medical decisions for you when you are unable to or are incapacitated, whereas a financial POA handles your finances.