What Powers Can a Financial Power of Attorney Include?

When you create a durable power of attorney for finances, you can give your attorney-in-fact—called your agent in some states—a broad range of powers. These powers put an enormous amount of control over your finances into the hands of your attorney-in-fact, so you should understand precisely what each power authorizes your agent to do. Also, your agent should understand that their power of attorney duties and responsibilities legally require them to act in your best interest.

This article outlines the role of the power of attorney (POA) document and the most common powers a POA can give, providing a brief explanation of each one.

Power of Attorney Duties

When you make a financial power of attorney, you can pick and choose what powers to give your attorney-in-fact. The sections below detail some of the many powers you can grant your agent. Depending on your needs, you may want to give your attorney-in-fact very broad powers, or you may want to restrict your agent's powers to only a few issues.

Real Estate Transactions

This power gives your attorney-in-fact full responsibility for your real estate. They must, for example, use your assets to pay your mortgage and taxes and arrange for necessary home repairs or maintenance. Critically, this power allows the agent to sell, mortgage, partition, or lease your real estate.

The attorney-in-fact may also take any other action connected to real estate. For example, your attorney-in-fact may:

• buy or lease real estate for you
• refinance your mortgage to get a better interest rate
• settle legal claims on your property
• purchase insurance for your property
• build, remodel, or remove structures on your property
• grant easements over your property, and
• initiate or defend lawsuits concerning your real estate

Financial Accounts

Most people who make a durable power of attorney want to give their agent at least some powers over their financial accounts. Below are a few types of accounts you might have.

Banking and Other Financial Institution Transactions

One of the primary reasons for creating a durable power of attorney is to appoint someone to manage banking transactions. If you give your attorney-in-fact authority to handle your bank accounts, they can pay your bills. Your agent can also deposit pension or other checks into your accounts.

In addition, with this power, your attorney-in-fact may open and close accounts with banks, savings, and loans, credit unions, or other financial institu­tions on your behalf. The agent has permission to write checks on these accounts, endorse checks you receive, and receive account statements. The attorney-in-fact may also access your safe deposit box to withdraw or add to its contents.

In most states, the attorney-in-fact may also borrow money on your behalf and pledge your assets as security for the loan.

Caution: Financial institutions may use different forms. Many banks and other financial institutions have their own durable power of attorney forms. Even if you create a broad power of attorney to grant banking power, it's a good idea to use the financial institution's form as well. Using the form that your financial institution is most familiar with will make it easier for your attorney-in-fact to get things done.

Stock, Bond, Commodity, and Option Transactions

This power usually gives your attorney-in-fact the power to manage your securities—including stocks, bonds, mutual funds, certificates of deposit, commodities, and call and put options. If you grant this power, your agent can buy or sell securities on your behalf, accept or transfer certificates or other evidence of ownership, and exercise voting rights.

Caution: Brokers may use different forms. Many brokerage houses have their own durable power of attorney forms. If yours does, it's a good idea to use it in addition to a broader durable power of attorney for finances. Using your broker's form will make things easier for your attorney-in-fact, because your broker won't need to investigate your power of attorney and quibble over its terms. The broker will already have its form on file and will understand exactly what your attorney-in-fact is authorized to do. If you do use a broker's form in conjunction with another financial power of attorney, be consistent; name the same attorney-in-fact for both documents.

Digital Assets and Accounts

A digital assets power can give your attorney-in-fact the ability to manage email, blogs, online financial accounts, social media profiles, and any other electronic accounts or files.

This power is typically broad, including the right to access, control, distribute, duplicate, deactivate, or delete your accounts or records. Of course, like all authority you grant in your POA, your attorney-in-fact may do these things only in your best interest and according to your instructions.

Ideally, this power would allow your agent to handle tasks such as paying bills using your online bank account, posting a note to your blog, or renewing your auto insurance online. But stating this power in your document may not be enough. Your attorney-in-fact's ability to get into your accounts will depend on:

• whether they have your username and password information
• whether you have made any prior arrangements with the company about your attorney-in-fact's ability to access your account
• possibly, the company's terms of service agreement
• why your attorney-in-fact needs access, and
• your state's law.

The easiest way to make sure that your attorney-in-fact will be able to access your accounts is to provide your username and password information. That way, your agent will immediately have the same control over the accounts that you would have. You can do this in a separate letter to your attorney-in-fact. Be sure to store this letter in a safe place and tell your attorney-in-fact where to find it.

If your agent doesn't have your username and password information, getting access to your digital assets will be difficult. Most states now give attorneys-in-fact the legal authority to access digital assets when the POA provides for such power. However, even where the law theoretically permits access, attorneys-in-fact are likely to face bureaucracy (at best) and obstinacy (at worst).

If you want your agent to have maximum access to your digital assets, include this power in your financial power of attorney and also leave instructions about how to access the accounts in a separate document. You can also provide some guidance on what you'd like your attorney-in-fact to do with your digital property. For example, you could ask your attorney-in-fact to respond to certain emails, update the amount of your automatic online payments to reflect the annual increase of your insurance premium, or close your Facebook account.

Caution: Even if you decide not to grant this power, depending on state law, your agent may be able to access some of your digital assets. If you're concerned about your agent's access to your online accounts, consult a lawyer familiar with the law in your state.

Insurance and Annuity Transactions

This power allows your attorney-in-fact to buy, borrow against, cash in, or cancel insurance policies or annuity contracts for you and your spouse, children, and other dependent family members. Under this power, the attorney-in-fact's authority extends to all your policies and agreements, whether they name you or someone else as the beneficiary—that is, the person who will receive any proceeds of the policy when you die.

The one exception to this rule applies to insurance policies you own jointly with your spouse. Under these policies, your spouse must consent to any transaction that affects the policy. So, if your agent is not your spouse, it will be necessary to obtain your spouse's permission before taking action. Especially in community property states, even policies that are in one spouse's name may be owned by both spouses. If you have questions about who owns your insurance policies, consult a lawyer for guidance.

If you already have an insurance policy or annuity contract, this power allows your attorney-in-fact to keep paying the premiums or cancel it—while always acting in your best interests. Your attorney-in-fact may also change and name the beneficiaries of your insurance policies or annuity contracts. This power is broad, and it's a good idea to discuss your wishes about it with your agent. If you don't want your agent to change your beneficiary designations, make that clear. If you have strong feelings about who the designated beneficiary of any new policies should be, you can discuss that as well.

Retirement Plan Transactions

This power generally gives your agent authority over retirement plans such as IRAs and Keogh plans. Under this power, your agent may select payment options and designate beneficiaries—the people who will take any money left in the fund at your death. Your agent can also change current beneficiary designations, make voluntary contributions to your plan, change the way funds are invested, and roll over plan benefits into other retirement plans. The agent may also perform any other actions authorized by the plan, including borrowing from it.

The power to change the beneficiaries of your retirement funds is a drastic one. Talk with your attorney-in-fact to be sure they understand your wishes with respect to this power.

Business Operating Transactions

This power typically gives your attorney-in-fact authority to operate a business that you own yourself or that you run as a partnership, limited liability company, or corporation. Subject to the terms of a partnership agreement, an operating agreement, or corporate rules, this power allows your attorney-in-fact to:

• sell or liquidate the business
• merge with another company
• prepare, sign, and file reports, information, and returns with government agencies
• pay business taxes
• enforce the terms of any partnership agreement in court, and
• exercise any power or option you have under a partnership agreement.

If your business is a sole proprietorship, the attorney-in-fact may also:

• hire and fire employees
• move the business
• change the nature of the business or its methods of operation, including selling, marketing, accounting, and advertising
• change the name of the business
• change the form of the business's organization—that is, enter into a partnership agreement or incorporate the business
• continue or renegotiate the business's contracts
• enter into contracts with lawyers, accountants, or others, and
• collect and spend money on behalf of the business.

If you're a sole proprietor, a durable power of attorney is a good way to let someone else run your business if you become unable to do so. No court proceedings are required for the attorney-in-fact to take over if you become incapacitated, so there should be no disruption of your business. If you grant this power, be sure to work out a business plan with the person you plan to appoint as your attorney-in-fact; explain what you want for your business and how you expect your attorney-in-fact to manage it.

Caution: Check your existing agreements. If you operate your business as a partnership, limited liability company, or closely held corporation, your business agreement should address what happens if a partner or shareholder becomes incapacitated. Typically, other business owners can operate the business during the incapacitated person's absence or even buy out their share. A durable power of attorney will not affect these rules you already have in place.

Example: Jessie wants their partner, Elle, to be their attorney-in-fact to manage finances if Jessie becomes incapacitated. Jessie, a housepainter, runs the M-J Painting Co. with their equal partner, Jack. The business agreement stipulates that if one partner becomes incapacitated, the other has exclusive authority to operate the business.

Jessie, Elle, and Jack should carefully consider the arrangement and may want to consult a lawyer. The trio should clearly outline all decisions in the business agreement. Jessie may also want to create a customized durable power of attorney, with the lawyer's help, that sets out the details of the business arrangements.

Legal & Government Issues

You can also give your agent power over a variety of legal and government issues. Here are some examples.

Estate, Trust, and Other Beneficiary Transactions

This power is often narrowly defined, authorizing your agent to act on your behalf to claim or disclaim property you get from any other source. For example, if you were entitled to money from a trust fund, this power would allow your agent to go to the trustee—the person in charge of the trust—and press your claim on your behalf. Or, if for any reason it would be in your best interest to disclaim the inheritance, your attorney-in-fact could turn down the cash.

With careful thought, you can broaden the estate and trust powers in a variety of ways. It's common, for example, to grant an agent the power to transfer property to an existing living trust, as discussed just below.

While it's rare and radical, some people wish to give their agent the power to revise their will or create, modify, or revoke a trust. This power is so far-reaching that some states don't allow it. If you want to give your agent such broad power, talk to a lawyer to be sure it's both wise and permitted.

Transferring Property to Your Living Trust

A revocable living trust is a legal structure you create by preparing and signing a document that specifies who will receive particular property at your death. People usually make living trusts to avoid probate. However, a living trust may also help you save on estate taxes or set up long-term property management.

If you've already made a living trust, this power can give your attorney-in-fact the authority to transfer items of your property to that trust. But your attorney-in-fact can transfer property into your living trust only if you've granted authority over that type of property elsewhere in your document. For example, if you want your attorney-in-fact to be able to transfer real estate into the living trust, you must also grant the real estate power. And if you want your attorney-in-fact to transfer bank accounts to your living trust, you must also grant the banking transactions power.

Your attorney-in-fact won't have the authority to manage the property in your living trust unless you also name them as the successor trustee of your living trust.

Legal Actions

A provision covering legal actions grants your agent the power to act for you in all matters that involve courts or government agencies. For example, with this power, your attorney-in-fact can bring or settle a lawsuit on your behalf. Your attorney-in-fact can also accept court papers intended for you and hire an attorney to represent you in court, if necessary. Unless your attorney-in-fact is a lawyer, he or she may not represent you in court but must hire someone to do so. If you lose a lawsuit, the attorney-in-fact can use your assets to pay the winner whatever you owe.

Government Benefits

This power allows your agent to apply for and collect any benefits you may be entitled to from Social Security, Medicare, Medicaid, or other government programs or civil or military service. To collect most government benefits, your agent must send the government office a copy of the durable power of attorney to prove their authority. Social Security is an exception, however.

Tax Matters

This provision gives your agent authority to act for you in all state, local, and federal tax matters. With this power, your attorney-in-fact can prepare and file tax returns and other documents, pay tax due, contest tax bills, and collect refunds. To file a tax return on your behalf, the attorney-in-fact must include a copy of the POA with the return. The attorney-in-fact is also authorized to receive confidential information about you from the IRS.

The IRS has its own power of attorney form, but you don't need to use it. It enables attorneys, accountants, and other professionals to access confidential tax information on behalf of clients. However, it is not a comprehensive, durable power of attorney for tax matters. It's better to create a comprehensive durable power of attorney that gives your attorney-in-fact the power to receive confidential information from the IRS, plus the authority to handle any tax matters that arise.

Personal Concerns

Despite its name, a financial POA can also give authority over more personal powers, like the authority to manage things you own or the authority to pay for your day-to-day needs.

Personal Property Transactions

Personal property means physical items—for example, cars, furniture, jewelry, computers, and stereo equipment. It does not include real estate or intangible property such as stocks.

Typically, this power allows your attorney-in-fact to buy, sell, rent, or exchange personal property on your behalf. Your agent can also insure, use, move, store, repair, or pawn your things. Again, your agent or agent must always act in your best interest.

Example: Paul names his wife, Gloria, as his attorney-in-fact for financial matters. When he later goes into a nursing home, his old car, which he can no longer use, becomes an expense Gloria cannot afford. As Paul's attorney-in-fact, she has legal authority to sell the vehicle.

Personal and Family Care

This power is important. It gives the attorney-in-fact the authority to use your assets to pay your everyday expenses and those of your family. With this power, the attorney-in-fact can spend your money for your family's food; shelter; education; cars; medical and dental care; membership dues for churches, clubs, or other organizations; pets; vacations; and travel. The attorney-in-fact is allowed to spend as much as it takes to maintain the standard of living to which you, your spouse, children, and anyone else you usually support are accustomed.

If you regularly take care of others—for example, you are the primary caretaker for a disabled sibling or parent—this power would allow your attorney-in-fact to use your assets to continue to help those people.

Pet Care

A properly executed POA that includes the standard powers discussed in this section—for example, the banking power and the personal and family care power—should permit your agent to spend money to take care of your pets. But because the law isn't explicit about pets, you can grant a pet care power to ensure that your agent has complete authority to provide care for your animals.

This power guarantees that your agent can pay for the ongoing care of your pets or animals, including food, veterinary care, grooming, toys, day care, and temporary boarding or pet-sitting fees. Your agent will be permitted to care for your pets or animals in the same way as you have done.

Making Gifts

You can also use your financial power of attorney to make gifts of your property. You may already know that you want your attorney-in-fact to be able to give away your property under some circumstances. On the other hand, allowing your attorney-in-fact to make gifts might feel like giving up too much control. This section discusses the advantages and disadvantages of granting the power to make gifts, as well as how the power operates.

Reasons to Allow Gifts

There are many reasons to permit your attorney-in-fact to make gifts of your property. Here are a few of the most common.

Estate tax savings. If you have substantial assets (many millions of dollars) and are concerned about your eventual estate tax liability, you may be planning to reduce estate taxes by giving away some of your property while you are still alive. If you have set up this sort of gift-giving plan, you'll probably want to authorize your attorney-in-fact to continue it.

Other gift-giving plans. There are lots of reasons to give gifts during your lifetime. For example, you may want to make regular donations to your church or a favorite charity. Or perhaps you've committed to helping a family member with college or starting up a business.

Family emergencies. We are all occasionally caught off guard by unexpected financial troubles. You may want your attorney-in-fact to be able to help out if a loved one faces such an emergency.

Possible Gift Tax Consequences

Except for gifts to your attorney-in-fact, you cannot use your power of attorney to limit the size of the gifts that your attorney-in-fact makes. If your attorney-in-fact gives away more than a certain amount—currently $19,000—to any one person or organization in one calendar year, they will probably have to file a federal gift tax return on your behalf.

Several kinds of gifts, however, are not taxable regardless of amount: gifts to your spouse, gifts that directly pay for medical expenses or tuition, and gifts to tax-exempt charities. Even when you owe gift tax, unless you make hundreds of thousands of dollars' worth of taxable gifts during your life, no tax will be due until after your death. Because your attorney-in-fact is required to act in your best interest, making large gifts could create a conflict. On one hand, your attorney-in-fact may feel that you would want to make a sizable gift—even if it's a taxable one—to a particular person or organization. On the other hand, if you have a vast estate that is likely to owe estate tax at your death, your attorney-in-fact won't want to increase your eventual tax liability.

For these reasons, if you do permit your agent to make gifts, you should explain, ahead of time, what you intend and whether you have any limits.

Gifts to the Attorney-in-Fact

First, you must decide whether you want to allow your attorney-in-fact to make gifts to themself. Because this raises some unique issues, you must consider it separately from the question of gifts to other people.

If you want to allow gifts to your attorney-in-fact, you must place an annual limit on them. You must do this due to a complex legal rule known as a general power of appointment. If your attorney-in-fact has unlimited power to receive your property and happens to die before you do, the attorney-in-fact could become the legal owner of all your property. In this case, your attorney-in-fact would be subject to taxes based not only on their assets, but on yours as well.

To avoid this problem, you must limit the amount of money your attorney-in-fact may accept in any given year. To avoid trouble with gift taxes, consider using the current gift tax threshold as a guide and set the limit at $19,000 or less. Whatever amount you choose, be sure it's far less than what you're worth. If you set the limit too high, you may inadvertently create a general power of appointment.

Gifts to the Alternate Attorney-in-Fact

You may want to allow your primary attorney-in-fact to receive gifts of your property, but not your alternate attorney-in-fact. If so, you can include this restriction in your power of attorney document. If you wish to allow your alternate to accept gifts of your property, that's fine, too. If you do allow gifts to your alternate, the annual gift limit will be the same as the amount you set for your first-choice attorney-in-fact.

Gifts to Others

Your financial power of attorney can also cover gifts to other people. If you're comfortable giving your attorney-in-fact broad authority, you can allow gifts to anyone your attorney-in-fact chooses. Or, you can specify the people and organizations to whom your attorney-in-fact may give your property. Your attorney-in-fact should have a sound understanding of your plans for giving gifts—including the recipients you have in mind, under what circumstances they should make gifts, and in what amounts.

Remember that any gifts your attorney-in-fact makes must be in your best interest or according to your explicit instructions. For example, your attorney-in-fact may make annual gifts to each of your three children to reduce your estate tax liability—or periodic gifts to your niece because you promised to help her with college costs. Your attorney-in-fact should follow the guidelines you set out in the power of attorney document.

Forgiving Loans

When you give your attorney-in-fact the power to make gifts, you also give the power to forgive or cancel debts others owe you. If anyone owes you money and you've authorized your attorney-in-fact to make gifts to them, be sure you let your attorney-in-fact know which debts you want others to pay back and which you want to forgive.

If you've authorized gifts to your attorney-in-fact and they owe you money, your attorney-in-fact can forgive those debts, too. However, for these debts, your attorney-in-fact can't cancel amounts exceeding their maximum gift amount in any calendar year. For example, your son, whom you've named as attorney-in-fact, owes you $20,000. You've placed the annual gift limit at $7,000. He can forgive his debt to you at the rate of $7,000 per year.

General Financial Powers

Many states offer financial power of attorney forms that allow you to grant every financial power by checking or initialing a single box. It's an easy way to complete a power of attorney form, but keep in mind that if you grant all possible powers, your agent will be able to handle your investments, real estate, banking, and almost all other financial tasks. The agent can use your assets to pay your debts and expenses—including home maintenance, taxes, insurance premiums, wage claims, medical care, child support, alimony, and your allowance. They can sign deeds, make gifts, pay school expenses, and endorse and deposit checks on your behalf.

Because a financial power of attorney includes such sweeping powers, it's best to carefully review each one before you decide if you're comfortable granting all of them. Keep in mind that you can limit any of the powers as you wish.

More Information About Durable Powers of Attorney for Finances

To learn more about durable financial powers of attorney, see the following articles:

• What Is a Durable Power of Attorney for Finances?
• When Does a Durable Power of Attorney Take Effect?
• Signing and Notarizing a Durable Power of Attorney
• When Does a Power of Attorney End?

You can learn more about making WillMaker’s durable power of attorney for finances in WillMaker’s Legal Manual.