A power of attorney for financial affairs (sometimes called a power of attorney for business) is an important component of an estate plan. A power of attorney is a written instrument by which one person (called the “principal”) grants to another person (called the “attorney-in-fact” or more commonly, the “agent”) the authority to act on behalf of the principal.
Types of Financial Powers of Attorney
Financial powers of attorney come in several forms, each designed for different situations and offering varying levels of control. The type you choose depends on your specific needs, comfort level with delegating authority, and the purpose for which you need representation. Here are the main distinctions to consider:
Special vs. General Powers of Attorney
A power of attorney can be “special” or “general”. A special power of attorney is typically used to allow the agent to act for the principal in a particular transaction, such as the sale of real estate or the exercise of stock options. At Perry Morgan Attorneys we have drafted Special Powers of Attorney for Chevron and Bechtel employees that allowed their agents to sell or rent their homes in the Bay Area while they were assigned overseas. Because special powers of attorney are limited in scope, a general power of attorney is usually more appropriate in most estate plans.
A general power of attorney is usually very broad in scope. It typically allows the agent to do anything the principal could do on his or her own behalf. Thus, the agent is usually given the power to:
- Buy, sell, or rent real estate
- Sell or buy stocks, bonds or other securities
- Open or close financial accounts
- Sign contracts that bind the principal
- Sign and file tax returns
- Manage business operations and make business decisions
- Access safe deposit boxes
- Handle insurance matters and claims
Many general powers of attorney limit the agent’s power to engage in certain transactions, such as making gifts of the principal’s property to the agent or exercising powers granted to the principal as trustee of a trust. Nevertheless, most general powers of attorney give the agent extraordinary powers over the principal’s financial affairs.
Durable vs. Non-Durable Powers of Attorney
A power of attorney may be “durable” or “non-durable”. A durable power is one that remains effective even when the principal is incapacitated. A non-durable power becomes ineffective upon the principal’s incapacity. Because most clients want their powers of attorney to be used only if they become incapacitated, most general powers of attorney in California are durable.
It’s important to note that in California, a power of attorney must specifically state that it is durable to remain effective during incapacity. The document must include language such as “This power of attorney shall not be affected by subsequent incapacity of the principal” or similar wording as specified in California Probate Code Section 4124.
Choosing Your Agent
Because of the enormous power of these documents (the power to empty the principal’s bank accounts and sell all their property, for example) clients should name only the most trustworthy family members or friends, or a professional fiduciary, as their agent. The person you select will have significant control over your financial life, so this decision requires careful consideration. Consider these factors when selecting an agent:
- Financial responsibility and experience
- Geographic proximity (especially for managing physical assets)
- Willingness to serve and time availability
- Ability to work with other family members
- Alignment with your values and wishes
Many clients choose to name successor agents in case their primary agent cannot serve. You can also name co-agents who must act together, though this can sometimes create practical difficulties.
Springing vs. Immediate Powers of Attorney
One of the most significant decisions in creating a power of attorney is determining when it becomes effective. This timing can have major implications for both your autonomy and your protection. California law allows for two approaches:
Springing Powers of Attorney
To ensure that a power of attorney is not used until it is absolutely necessary, a “springing” power of attorney is often appropriate.
A springing power of attorney only becomes effective upon the occurrence of a particular triggering event, typically the incapacity of the principal. The triggering event is often the written statement by one or two physicians that the principal is unable to manage their own financial affairs. In California, the specific requirements for determining incapacity should be clearly defined in the document to avoid confusion or delays when the power needs to be activated.
Advantages of springing powers of attorney:
- Principal maintains full control until incapacitated
- Reduced risk of premature use
- Greater peace of mind for those concerned about autonomy
Immediate Powers of Attorney
A non-springing power of attorney, on the other hand, becomes effective when it is executed by the principal. This choice between a springing power or a power that is effective immediately is one of the most important decisions a client makes in planning for their incapacity.
Advantages of immediate powers of attorney:
- No need to prove incapacity during crisis
- Seamless transition of financial management
- Useful for frequent travelers or those with health issues
- Agent can step in quickly during emergencies
Older clients with trustworthy children are often best served by a power of attorney effective immediately because it avoids a scramble to find doctors willing to sign a capacity declaration when the principal becomes incapacitated. Most clients, however, feel more comfortable with a springing power of attorney.
Important Limitations and Considerations
While powers of attorney grant broad authority, they have specific boundaries set by California law. Being aware of these limitations helps prevent misuse and ensures the document serves its intended purpose. Key restrictions include:
- They automatically terminate upon the principal’s death.
- They cannot be used to change a will or trust.
- They cannot override the principal’s own decisions while competent.
- Banks and financial institutions may require their own POA forms.
- Some actions may require specific authorization in the document.
Finally, powers of attorney for financial affairs typically do not give the agent the authority to make heath care decisions for the principal. Those powers are typically granted in an “advance health care directive” or “power of attorney for health care,” which are discussed in a subsequent post.
Updating and Revoking Powers of Attorney
Your power of attorney should evolve with your life circumstances. Regular reviews help ensure the document continues to reflect your wishes and works when needed. Consider updating your POA when:
- Your chosen agent’s circumstances change.
- Your relationship with the agent changes (divorce, estrangement).
- Your financial situation significantly changes.
- You move to a different state.
- Laws change (California updates its POA statutes periodically).
A principal can revoke a power of attorney at any time while mentally competent by creating a written revocation and notifying the agent and any institutions where the POA has been used.
Get Professional Help
Based in Danville, California, near Walnut Creek and San Ramon, our attorneys have drafted special and general powers of attorney for clients throughout Northern California. We help ensure your power of attorney meets all California legal requirements, includes appropriate protections, and aligns with your overall estate planning goals. Contact us today to discuss which type of power of attorney best suits your needs!
