While most of us know we should make a will, few people realize how crucial it is to set up a durable power of attorney (also known as an enduring power of attorney).
In fact, according to the AARP, only 45% of adults over the age of 50 have a durable power of attorney in place. That leaves a large portion of the population vulnerable if they are unable to make their own legal and financial decisions.
A power of attorney is a legal document that authorizes an agent or attorney-in-practice to act in your place. It tends to have a limited time span, and is only valid while you are mentally capable.
By contrast, a durable power of attorney is a legal document that empowers someone you appoint to make legal, medical and financial decisions for you if you’re not mentally capable. If you’d like help with your financial, medical and legal affairs while you’re still mentally capable, you can also put a durable power of attorney into effect at any time.
A durable power of attorney can take over responsibility for things like paying your bills, buying or selling investments or assets, giving money to family or charity, and taking care of your legal affairs if you’re no longer able to.
While you take a minute to consider the role of a durable power of attorney in your life, here are a few other important things to think about:
Who Do You Trust?
The most important thing to consider is how much you can trust that person. Unfortunately, thousands of seniors are defrauded each year by people they entrust to act on their behalf. A 2011 survey by the MetLife Mature Market Institute found that seniors lose $2.9 billion annually to this kind of financial elder abuse.
While you might think friends commit the majority of the frauds, seniors are frequently defrauded by their children or other family members. For this reason, be certain you can really trust the person you choose.
Can They Handle the Demands of the Role?
While almost anyone can learn how to act as an agent, you’ll be better off choosing someone who has experience handling their own finances or who has business or accounting experience. Your attorney-in-fact might have to work with financial planners, accountants and lawyers on your behalf.
Choose someone who won’t feel overwhelmed by the demands of the role, pays a great deal of attention to detail and keeps clear records.
Availability Is Crucial
Choose someone who lives near you and will be available to help when needed. If you choose someone who lives far away, travels frequently or is too busy to help you, they might not be able to be there when you need them and your finances might suffer.
You Can Choose More than One Person
Many people think you can only have one agent in your enduring power of attorney, but you can actually choose more than one person. In fact, it often makes sense to have more than one: if one person is away or unavailable, the other person will be able to handle your affairs.
Another reason to consider having two people act as your attorneys-in-fact is to safeguard against fraud. Choosing two people can provide the necessary oversight to ensure your future, (financial and otherwise) is safeguarded.
Pick an Institution
If you don’t have family or close friends living nearby, you can choose a bank or a professional (such as a lawyer or accountant) to act as your attorney-in-fact.
If you do choose a professional or institution, choose a well-established company that has the safeguards to protect you against fraud.
You may also want to enlist a professional or institution to act as your secondary agent to ensure that things are well handled. In either case, know they will charge you a monthly fee, or a percentage of your assets.