A financial power of attorney is also known as a general power of attorney. It is an affordable method for one person (the “principal”) to give another person (the “agent” or “attorney-in-fact”) legal authority to manage some or all of the principal’s financial affairs. In general, the agent may do whatever the principal may do, such as withdraw funds from bank accounts, trade stock, pay bills, cash checks, etc. As you can see, a financial power of attorney is an extraordinarily powerful document, and one should give great thought to it before deciding to actually follow through on it.
Any adult with sufficient mental capacity can create a power of attorney by writing down the name of the person he or she wants to designate as an agent and exactly what he or she wants the agent to do. Once the document has been prepared, the principal should have it notarized. Once the power of attorney has been granted, the principal may change his or her mind and revoke a power of attorney at any time, as long as the principal has sufficient mental capacity.
An agent who acts on behalf of the principal must do so to benefit the principal, rather than the agent. In Colorado, the agent is held to the “prudent man rule,” which holds, among other things, that the agent should avoid speculative investments. If an agent doesn’t act in accordance with the principal’s wishes or in the principal’s best interests, the agent can be held liable. If a principal suspects his or her agent is misusing a power of attorney, the principal should immediately revoke the power of attorney, notify any people or institutions that may have received a copy of the document, and demand an immediate accounting from the agent.
Again, the financial power of attorney can be a very powerful document, and often it is a useful document. However, if you are considering granting someone a financial power of attorney, make sure you have thought things through, understand the consequences of giving someone such a power, and do so carefully and correctly.