Financial Power of Attorney: How It Works

A durable financial power of attorney can avoid financial disaster in the event you become incapacitated. You can also use a POA to allow someone to transact business for you if you are out of town or otherwise unavailable.

by Edward A. Haman, Esq.
updated May 02, 2022 ·  5min read


If you need to give another person the ability to conduct your financial matters when you can’t or unable to be present, a financial power of attorney (POA) may be your solution.

Elderly married man and woman hold hands

What Is Power of Attorney?

A power of attorney (or POA) is a legal document that authorizes someone to act on your behalf.

The person who gives the authority is called the "principal," and the person who has the authority to act for the principal is called the "agent," or the "attorney-in-fact."

What Is a Financial Power of Attorney?

A financial power of attorney is a particular type of POA that authorizes someone to act on your behalf in financial matters. Many states have an official financial power of attorney form.

How Does a Power of Attorney for Finances Work?

Once the power of attorney is executed, the original is given to your agent, who may then present it to a third party as evidence of your agent’s authority to act for you (such as withdrawing money from your bank account, or signing papers for you at a real estate closing).

You are legally obligated to a third party who relies on the power of attorney in dealing with your agent.

When Does a Power of Attorney Become Effective?

Depending upon how it is worded, a POA can either become effective immediately, or upon the occurrence of a future event.

If the POA is effective immediately, your agent may act on your behalf even if you are available and not incapacitated. This is done when someone can’t be present for a particular transaction, or so that one spouse is able to represent an out-of-town spouse.

However, generally, people don’t want to give someone authority as long as they can act for themselves. If a POA becomes effective upon the occurrence of a future event, it is called a springing power of attorney, because it “springs” into effect if the event occurs.

The most common future event is the incapacity of the principal. Incapacity is where the principal is certified by one or more physicians to be either mentally or physically unable to make decisions.

This could be due to such things as mental illness, Alzheimer’s disease, being in a coma, or being otherwise unable to communicate.

When Does a Power of Attorney End?

The authority conferred by a POA always ends upon the death of the principal. The authority also ends if the principal becomes incapacitated, unless the power of attorney states that the authority continues. If the authority continues after incapacity, it is called a durable power of attorney (or DPOA). In cases of incapacity, a DPOA will avoid someone having to go to court to be appointed the guardian of your property (some states refer to this as conservatorship).

The authority also ends if you revoke it, a court invalidates it, your agent is no longer able to serve and you have not appointed an alternative or successor agent, or (in some states), if your agent is your spouse and you get divorced.

Who Should Be Your Agent?

The only legal requirements to be an agent are that the person be of sound mind and at least eighteen years of age.

It is essential that your agent be someone whom you trust totally. Your agent has the legal obligation to act in your best interest, to keep records of transactions, not to mix your property with theirs, and not to engage in any conflict of interest.

However, an agent still has the potential to act unlawfully, so it is important to trust the person you select.

How to Make a Financial Power of Attorney

Many states have an official durable power of attorney form, which is usually a durable financial power of attorney form. Some banks and brokerage firms have their own power of attorney forms. Also, for buying or selling real property, a title insurance company, lender or closing agent may require the use of their form. Therefore, you may end up with more than one financial POA form.

Generally, a financial power of attorney must be signed before a notary public. Especially if the sale or purchase of real estate is involved, it may also need to be signed before witnesses. In a few states, the agent is also required to sign to accept the position of agent.

What Can an Agent Do?

Your agent may do as much, or as little, as you wish, depending upon what you say in the POA. Some people grant an agent the authority to conduct all financial matters, while others only authorize a single financial transaction (such as signing documents at a real estate closing). The official POA forms of some states list various types of financial matters, such as:

  • Real property transactions
  • Personal property transactions
  • Stock, bond or other securities transactions
  • Banking and other financial institution transactions
  • Handling the operation of a business
  • Insurance and annuity transactions
  • Estate, trust and other beneficiary transactions
  • Claims and litigation
  • Government benefits (such as Social Security, Medicare or unemployment compensation)
  • Retirement benefits
  • Tax matters
  • Safe deposit box access
  • Making gifts to individuals or charities

You select which powers you wish to grant, either by checking those you grant or by crossing out those powers you don’t want your agent to have.

Acceptance of a Power of Attorney by Third Parties

The big question about any POA is will a third party accept it? Generally, a third party is not required to accept a power of attorney. However, some state laws provide for penalties for a third party who refuses to accept a power of attorney using the state’s official form. One thing you can do to help assure its acceptance is contact anyone you think your agent may need to deal with and be sure they find your POA acceptable.

What If You Already Have Joint Property or a Living Trust?

If you and your spouse or another person own property jointly, the property will automatically transfer to the survivor upon your death. However, this will not allow the other person to sell or mortgage the property if you become incapacitated, but a DPOA will.

While a living trust will typically allow the trustee to transact business for the trust if you become incapacitated, most people do not put all of their property into their trust. If you own any property that is not in the trust, you should consider a DPOA for that property.

Ready to get your Financial Power of Attorney? Get my POA
Edward A. Haman, Esq.

About the Author

Edward A. Haman, Esq.

Edward A. Haman is a freelance writer, who is the author of numerous self-help legal books. He has practiced law in Hawa… Read more

This portion of the site is for informational purposes only. The content is not legal advice. The statements and opinions are the expression of the author, not LegalZoom, and have not been evaluated by LegalZoom for accuracy, completeness, or changes in the law.