The Problem With DIY Financial Power of Attorney Documents

by Cameron Huddleston

The Problem With DIY Financial Power of Attorney Documents

Contents

    A financial power of attorney is an essential document for all adults. It allows you to name someone to manage financial affairs for you if you’re unable to do so yourself.

    The power can be limited to certain transactions and situations, or it can be broad. For example, you could name a power of attorney to sign financial documents for you if you’re going to be out of the country.

    However, it’s especially important to have someone you trust (or more than one person) who can legally step in and make financial decisions for you if you become mentally incapacitated. If you’re a caregiver for a parent or loved one, you’ll need to be named power of attorney to legally handle that person’s finances.

    There are free and low-cost documents online that make it fast and easy to appoint a financial power of attorney. And while some end-of-life documents, like advanced health care directive forms, tend to be fairly straightforward and are readily available on official websites (like the American Bar Association or CaringInfo), the process of naming a financial power of attorney can be complex. When it comes to these documents, the adage “you get what you pay for” is true.

    “It’s always safer to have a lawyer do it for you,” says Charles Sabatino, director of the American Bar Association’s Commission on Law and Aging. 

    Here’s what you need to know about the drawbacks of DIY power of attorney documents and why it’s worth it to spend more to have an attorney draft this essential document.

    The cost of DIY vs. an attorney-drafted POA

    Cost and convenience are the two selling points of DIY power of attorney documents. You can find free fill-in-the-blank forms on some state bar association websites and state agency sites. Legal document services such as LegalZoom and Nolo offer power of attorney documents for less than $50.

    Attorneys, on the other hand, could charge up to a couple hundred dollars to draft a power of attorney. Typically, though, these documents are included in an estate planning package that also would include a will and advance health care directive and would cost several hundred dollars to $1,000 or more.

    If the cost of hiring an attorney is an obstacle, you might qualify for assistance. Older adults can call their local area agency on aging to find out what resources are available to help with drafting a power of attorney document for free or at a reduced cost.

    What you get with a DIY vs. attorney-drafted POA

    There are four main types of financial power of attorney:

    • Limited power of attorney allows your agent to make only certain types of transactions or one-time transactions.
    • General power of attorney gives your agent broad powers but is no longer valid if you become incapacitated or when you die.
    • Durable power of attorney can be limited or general and remains in effect if you become incapacitated.
    • Springing power of attorney takes effect only in certain circumstances that are spelled out in the document.

    DIY power of attorney documents tend to be general or durable. Some allow you to check which powers you want to give your power of attorney. Some simply list the powers and don’t allow you to choose which ones you do or do not want to allow.

    An attorney, on the other hand, will draft a power of attorney document that complies with your state’s law and is specific to your needs – depending on whether you want limited, general, durable or springing. The attorney can discuss with you what sort of powers you want to grant and which you want to exclude and can ensure the document has safeguards to protect you.

    [ Read: What You Need to Know About Being a Financial Caregiver ]

    The risks with DIY documents

    Although the low cost and convenience of DIY power of attorney documents make them appealing, the cons outweigh the pros. Sabatino of the American Bar Association says the following are several reasons why you should be cautious about using fill-in-the blank forms.

    The document might not comply with your state law.  Twenty-eight states have adopted the Uniform Power of Attorney Act, which is a standardized set of power of attorney provisions. The remaining states have their own provisions. So a DIY document that isn’t state-specific might not conform to your state’s power of attorney rules. Plus, the requirements for making a POA document legally binding – such as having it notarized or witnessed – vary from state to state. If the DIY form you find online doesn’t provide state-specific instructions for executing the document, you might not take the proper steps to make it valid.

    The document could give too much or not enough power to your agent.  Even if you find a state-specific form, it still won’t be tailored specifically to your needs. And you might not fully understand the language in the document or what powers you’re giving your power of attorney.

    For example, if you want your power of attorney to be able to make financial decisions for you if you become mentally incompetent, your POA won’t have that power if the document says the power of attorney is effective until your become disabled or incapacitated. That sort of language would actually take away the power of attorney’s power once you were incapable of making your own decisions.

    You could expose yourself to unintended exploitation.  One of the biggest problems with any power of attorney document is that it can expose you to financial exploitation if the power is given to the wrong person or if the document doesn’t have enough safeguards to protect you. 

    For example, DIY documents often include language that allows the agent to make gifts with your money, including gifts to him or herself. "A power of attorney with open gifting authority is a blank check,” Sabatino says. “You have to be careful about who you give that check to."


    "A power of attorney with open gifting authority is a blank check,” Sabatino says. “You have to be careful about who you give that check to."


    An attorney can help you understand the risks such as the authority to make gifts and include language to reduce those risks, such as naming more than one power of attorney and requiring signatures of both for transactions over a certain amount. 

    Sabatino says it’s also a good idea to require that your agent provide an accounting of expenditures made with your funds to a third party on a regular basis. For example, if you have named a successor power of attorney (someone who will fill the role if your primary POA can’t serve), you could require your POA to send a monthly or annual report to that person. "The more eyes on what's going on, the better protected you'll be," he says.  

    The document could be open to disputes if the wording is not explicit enough. A DIY document will have the same status as one drafted by an attorney – that is, as long as all the necessary steps have been taken to make it legally valid such as having it notarized. However, if the wording in the DIY document isn’t explicit enough, it could open the door to disputes about the power your agent has. That could even lead to challenges in court.  

    When it’s OK to use a DIY document

    If you want to go the DIY route when creating a power of attorney document, Sabatino says it's best to use a legislatively created form from your state of residence. First, find out whether your state has adopted the Uniform Power of Attorney Act. The following states have enacted it:

    • Alabama
    • Arkansas
    • Colorado
    • Connecticut
    • Georgia
    • Hawaii
    • Idaho
    • Iowa
    • Kentucky
    • Maine
    • Maryland
    • Montana
    • Nebraska
    • Nevada
    • New Hampshire
    • New Mexico
    • North Carolina
    • Ohio
    • Pennsylvania
    • South Carolina
    • South Dakota
    • Texas
    • Utah
    • Virginia
    • Washington
    • West Virginia
    • Wisconsin
    • Wyoming

    If your state is on that list, a fill-in-the blank form is available on page 67 of the Uniform Power of Attorney Act. You also could check your state bar association website to see if it offers a power of attorney form. Or visit your state legislature site to find the state power of attorney act, which should have the POA form within the act. Be aware, though, that forms still can fall short because they don’t build in enough protections for you.

    If your state hasn’t adopted the Uniform Power of Attorney Act, Sabatino says it would be better to meet with an attorney because any online form you find online might not be tailored to your state's law.

    If the cost of hiring an attorney is an obstacle, you might qualify for assistance. Older adults can call their local area agency on aging to find out what resources are available to help with drafting a power of attorney document for free or at a reduced cost. Otherwise, check with your state bar association or local legal aid program.

    Once you do name a power of attorney, both you and your agent should have a copy of the document. And make sure that person knows what his or her responsibilities are. The Consumer Financial Protection Bureau has a series of guides to managing someone’s money that can help your power of attorney understand the role, or you can check out Carefull's 10 Tips and Tricks for Managing Your Parents' Finances.

    Disclaimer: The information provided on this website does not, and is not intended to, constitute legal advice; instead, all information, content, and materials available on this site are for general informational purposes only.

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    Cameron Huddleston

    Cameron Huddleston is the author of Mom and Dad, We Need to Talk: How to Have Essential Conversations With Your Parents About Their Finances. You can learn more about her at CameronHuddleston.com or follow her on Twitter @CHLebedinsky.

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