You may want to set up power of attorney if you’d like someone else to make decisions on your behalf. Special power of attorney has a narrow scope. It grants someone the right to act for you in certain situations. It can be helpful in financial decision-making. Here’s how it works.
A financial advisor can help you create a financial plan for your estate planning needs and goals.
Special Power of Attorney Explained
With a general power of attorney, you can authorize someone to make decisions when you’re not able to. Your agent, which is the person you choose, might be able to do a variety of things on your behalf. For example, they can file tax returns, access bank records or sign financial contracts in your name.
A special power of attorney only applies to specific situations. This is also called limited power of attorney. Someone with special or limited power of attorney can only act in situations defined by your power of attorney document. For example, say a married couples buys a home. One spouse may work out of state on the closing date. Therefore, the other could establish a special power of attorney allowing them to sign the closing documents in the other’s name.
Special power of attorney can be for one-time use or multiple uses. However, it depends on the conditions under which your agent is authorized to act. There are four ways you can set up special power of attorney:
Power of attorney remains in effect for your lifetime or until you decide to cancel it.
Power of attorney begins and ends on a certain date or ends once a specified event has occurred.
Power of attorney begins right away and ends when you become incapacitated.
Power of attorney begins when you become incapacitated and aren’t able to make decisions on your own.
You can have more than one special power of attorney, depending on your financial situation. For example, you might set one up for your spouse to allow them authority when managing day to day financial affairs, such as bank accounts. But you might have a separate limited power of attorney for your financial advisor or investment manager to handle your portfolio when you’re unable to.
Benefits of Special Power of Attorney
The primary reason to use special power of attorney is to make sure your finances and other legal affairs continue to be managed the way you want them to in situations where you’re not able to handle things yourself. If you’re in a serious accident, for example, or you become terminally ill then your agent would be able to take care of specific financial or legal decisions based on your wishes.
One thing to keep in mind is that special power of attorney only applies during your lifetime. If you were to pass away, then the power of attorney would terminate. At that point, your assets would be managed subject to the terms of your will or trust, if you have either one. In situations where someone dies without a will, assets are distributed according to the inheritance laws of their state.
Assigning Special Power of Attorney
Establishing a special power of attorney looks simple, but there are certain steps you need to follow. An estate planning attorney can walk you through the specifics and answer any questions you might have but generally, creating special power of attorney involves:
- Choosing who will act as your agent.
- Outlining the specific terms under which a special power of attorney will take effect.
- Determining which authority your agent will have.
- Naming a successor agent, if necessary.
- Selecting an end date for the power of attorney to terminate.
You can find power of attorney forms online but again, an estate planning attorney could help you draft one if you have more complicated instructions. Once you’ve completed the paperwork, make sure you sign and notarize it. It’s also a good idea to make sure your attorney and the person you choose as your agent have a copy of the power of attorney form on file.
Special Power of Attorney vs. General Power of Attorney
When trying to decide whether to use general power of attorney or limited power of attorney, consider when a special power of attorney might be necessary.
If you’re taking care of aging parents, for example, then general power of attorney might be more appropriate. It lets you manage various aspects of their finances or health care needs. On the other hand, you might only need special power of attorney to manage certain situations or assets. That’s especially true if they have other estate planning documents in place, such as a conservatorship.
A power of attorney could also be useful in situations where you’re managing assets on behalf of a disabled child or family member. Understanding how the limitations work can help you determine which one is the better option or if both may be necessary.
Special or limited power of attorney grants someone else authority over your affairs in limited circumstances. You can set up special power of attorney for multiple people. An estate planning attorney can help determine when special or general power of attorney is more appropriate.
Estate Planning Tips
- Consider talking to your financial advisor about whether you should have a special or limited power of attorney. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
- A power of attorney is just one document you may need to have for estate planning. A last will and testament and a living trust are also things you might consider including your financial strategy. These documents can help you manage assets according to your wishes after you pass away. You may also want to add an advance health care directive. It specifies what kind of care you should receive in end of life situations.
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