When you sign a financial power of attorney document, you are faced with a critical choice: Whether the document becomes effective immediately or only upon your disability or incapacity. This decision has significant implications for how your financial affairs are managed. Understanding the pros and cons of each option is essential for making the right choice for your circumstances. Hiring an experienced attorney, such as those at Heights Law Group, who will listen to you and tailor a plan that fits your needs is essential. One size does not fit all when it comes to your financial power of attorney.
Option 1: Effective Immediately
The “effective immediately” option grants the individual you name as your power of attorney—known as your fiduciary—the authority to make financial decisions on your behalf as soon as the document is signed. Initialing this option generally grants this authority not just to your primary decision maker, but if your primary decision maker is unable to serve, to your successor decision makers, in the order listed, as well.
Potential Risks & Considerations:
• Abuse of power: If the power is effective immediately, then theoretically, a fiduciary could empty your bank account and head to Aruba. Practically speaking, however, fiduciaries in Texas are held to a very high standard and abuse of power can result in serious criminal charges.
• Immediate authority: Your fiduciary can manage your bank accounts, pay bills, handle investments, and manage other financial matters without your explicit presence or a formal declaration of incapacity.
• Convenience: This option provides seamless financial management, even if you are simply traveling or temporarily unavailable, without needing a medical or legal finding of incapacity.
Option 2: Effective Upon Incapacitation
The “effective upon incapacitation” (or “springing” power) option means your fiduciary can only act on your behalf if you are unable to make decisions yourself. This is often seen as a protective measure against potential abuse of power.
Potential Risks & Considerations:
• The spectrum of incapacity: Incapacity is not always a clear-cut case of being unconscious and hooked up to medical devices. It is a sliding scale, referring to someone’s inability to make informed, rational decisions or understand their own situation (e.g., onset of dementia, brain trauma, extreme intoxication).
• Difficulty in obtaining a diagnosis: Doctors may be reluctant to formally declare a person incapacitated due to ethical concerns regarding patient autonomy and potential legal consequences.
• Legal hurdles: Without a proper medical diagnosis, a court cannot certify the incapacity, potentially leaving your fiduciary unable to execute their responsibilities when needed most. Even if someone seems incapacitated by popular standards, legal and medical technicalities determine if the power is granted.
Option 3: Effective Immediately as to Spouse and upon incapacitation as to all others
This option allows your spouse to make financial decisions for you immediately, but the power is a “springing” power for all other decision makers. Although at first glance, the convenience and considerations might make you think this is the way to go, the same potential risks apply in both Option 1 and Option 2.
The Recommendation
Due to the potential issues and delays that an official incapacity declaration can cause, it is generally recommended that the financial power of attorney document be effective immediately; however, the concern about someone abusing their financial powers is certainly understandable. It’s important that the fiduciary you choose is someone you trust, a person who is highly reliable, responsible, and fiscally astute. By law, your fiduciary is required to act in your best interest and put your needs above their own desires. For more details regarding financial power of attorney and other estate planning matters, contact the Heights Law Group for a free consultation.
