In my last blog post, I uncovered the need to plan for an unforeseen loss of capacity resulting from an accident or illness. Regarding financial matters, the main tool to combat the many problems incapacity can bring is called a General Durable Power of Attorney (aka “DPA”). The DPA is a critical document every adult, young or old, should have in place. In a nutshell, it determines who can sign financial documents for you in the event that you are unable. As with any legal document, this should be done with great care and consideration; a DPA is probably the most powerful document you will ever sign.
Due to the immense power that a DPA contains, it is critical that it is drafted properly and understood completely by the client who signs it. In most cases, your DPA gives your agent – the person you choose to put in charge – the same financial powers you have. Some of these powers are scary; your agent can take out loans in your name, credit cards in your name, sell your stuff and buy stuff. In addition, they can direct distributions from your IRA or 401k. You can imagine the ways this power could be abused by a poorly selected agent.
You might ask, with all those powers do I really want this document in place? The answer should be yes, as long as you have someone you trust to be your agent. As I stated in last month’s blog post, if your spouse needed to sell or refinance your house in the event of your incapacity, they would need your DPA to do it. Next month, I will discuss some of the pitfalls of a DPA and how to combat them.
This article is an excerpt from an article by Matthew Hart that was originally published in the Antioch Herald newspaper.
