Have you heard of the term ?power of attorney? before? It conjures images of lawyers and courtrooms, but the reality is slightly less dramatic.
What is a power of attorney?
A Power of Attorney is a written legal document which authorizes an individual or trustee organization to act on behalf of another. The authorized individual(s) are referred to as the attorney and the person being acted on behalf of is referred to as the principal or donor. Power of attorney is generally established in regard to managing financial affairs, such as:
- Personal finances like banking transactions and paying regular bills
- Investments such as property
- Tax returns and other tax affairs
- Cash donations to charitable organisations
Types of power of attorney
There are two main types of power of attorney; general and enduring.
General power of attorney is when an attorney is appointed to make all personal and business decisions for the principal. It could be invoked in the case of you going overseas and needing someone to manage your financial affairs while you?re away. If not revoked, general power of attorney is terminated upon death, or the principal losing mental capacity.
Enduring power of attorney gives similar permissions to a general power of attorney, but is specifically meant to continue beyond the principal losing capacity; for example, someone may use an enduring power of attorney to appoint an attorney responsible for their financial and personal decisions once dementia renders the principal unable to make those decisions for them.
It?s important to note that power of attorney is completely separate from a will. A person?s will dictates how their assets and possessions will be distributed after their death, whereas someone with power of attorney manages a person?s financial assets and affairs while they?re alive. All forms of power of attorney cease upon death of the principal.
A power of attorney can be an invaluable tool for those with failing health, or people with complex financial affairs and too much on their plate. But it?s important to think of the risks of misappropriation and fraud inherent in giving someone access to your finances and affairs, and therefore only name someone you trust above all else with such a serious duty.