When should I update my Power of Attorney?

A Power of Attorney (POA) is a document you have drawn, typically by an attorney, whereby you appoint someone as your ‘agent’ to make financial decisions on your behalf under certain circumstances.  In the typical POA, this means if you become incompetent due to sickness or injury, this person is able to step in and sign checks on your checking accounts, withdraw and deposit money into your bank account and generally act in your place for any and all financial decisions.  Often the ‘agent’ is a spouse or someone you trust to make these types of decisions for you.  Typically the POA comes in one of two forms: a general and durable POA or a ‘springing’ POA.  With a general and durable POA, your agent can act on your behalf at any time…even when you are fully competent.  With a springing POA, your agent must have a letter from your physician declaring you incompetent.  The general and durable POA is less trouble to use since your agent doesn’t have to prove incompetence but we only recommend it where you have a very high level of trust your agent won’t use it unless necessary.  Otherwise, we often recommend the springing POA.  I should note that there are many different forms of POAs that are drawn for specialized purposes.

Prior to 2012, we were finding it increasingly difficult to get financial institutions to accept validly drawn POA’s.  For example, we had a case where we submitted a request for a Required Minimum Distribution (RMD) from an IRA using a POA for an incompetent person.  The financial institution rejected the POA saying it lacked specific language that the institution required.  Failure to take a RMD in a timely manner results in a 50% federal penalty and getting an updated POA from an incompetent person is not possible…so you can see the dilemma.  We did figure a work-around in this case but the situation got so bad that a group of attorney’s drafted legislation which was passed by the Alabama legislature effective January 1, 2012, which now compels the financial institutions accept the POA.  So if you have a POA dated prior to that time it may, or may not, be valid depending on the institution.  It’s vitally important that you have a POA for if you don’t have one and become incompetent, someone will have to hire an attorney, go before the court and get a court issued POA.  This can be expensive, time consuming and the document will likely lack the flexibility that you’d prefer.  Be sure your attorney is familiar with the new law.

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