What do financial powers of attorney do?

On Behalf of | Jan 30, 2021 | Estate Planning

In addition to estate planning documents like wills and trusts, you must also protect your assets in other ways. Naming a financial power of attorney is an essential part of estate planning. While other methods protect your estate after you are gone, a power of attorney offers protection in the event of incapacity caused by illness of injury. 

Financial powers of attorney have many responsibilities and obligations, which highlights the importance of choosing the right individual to oversee your affairs. Kiplinger lists a few of these duties, so you can make the best decision. 

Take inventory

Inventory can include assets, such as bank accounts and 401(k)s, as well as expenses, which includes utility bills, mortgage payments, insurance costs, and more. No matter how well organized your records are, your power of attorney should still take a thorough accounting to rest assured they have a good handle on your finances. 

Pay bills and taxes

A power of attorney will use your assets to pay bills, as well as taxes, as they become due. The person must also make sure the bills you are being sent are fair and accurate. Should questions arise, they must perform the necessary due diligence to determine whether further action should be taken or if the bill is accurate. This task is quite similar to managing one’s own finances, so the person you choose should have a good mind for money management. 

Maintain accurate records

Record-keeping is a crucial aspect of being a power of attorney. The person you choose should track every expenditure, even when paying bills and taxes on your behalf. This offers protection to both you and your financial representative. If there are questions about how money was spent or what happened to certain assets, accurate records can show that the person acted in accordance to your wishes and had your best interests in mind during the process. If you are planning on reimbursing the power of attorney for personal expenses, records are essential to determining the correct amount.