OK, I’m not talking about an actual spare tire – I’m talking about a Power of Attorney.  Yes, a Power of Attorney is just like a spare tire; I’ll let that analogy sink in for a few moments.  The term “Power of Attorney” is not foreign to most people, but how many of them really understand what it means?

 A Power of Attorney (POA) is a legal document but it has very little to do with an attorney.  Although your attorney prepares the document, your attorney is usually not named in the document and has no power under the document.  Instead, your POA allows you to name a family member or close family friend as your attorney-in-fact (i.e. your Agent) to handle your financial affairs for you, pay your bills, manage your investments, etc.  Many people consider a POA as something intended to be used if you become incapacitated, but most POAs are effective immediately and can be used if you are simply unavailable (for example, when one spouse is traveling out of the country and the other spouse needs to sign loan documents for a bank).  The important thing to know is that if you don’t have a POA in place and you become incapacitated, then your family will likely need to have a legal guardian appointed for you by the court; this  can be an expensive and time-consuming process.

 My clients often struggle with the decision of who to name as the Agent in the POA.  My advice is to name someone that you trust implicitly with everything; someone you would gladly hand your credit cards and checkbook to without any concern.  Typically a 19 year old child is not the first choice unless your chief goals are to 1) hit all the best concerts  within a 2 hour drive, 2) maintain a high profile in the local club scene, and 3) have an endless supply of Red Bull.  Most often people pick someone in their family or a close family friend who has sound business judgment and good money management skills.  Also, it is important to pick someone who is likely to get along with most everyone in your family; this will hopefully avoid potential conflicts in the future.

 A POA does not allow your Agent to do everything for you.  For example, your Agent can’t make or change your Will, can’t get a divorce for you, and can’t act in your place as an officer in a company; however, most other legal or financial matters that require your signature are fair game.  The POA may also allow your Agent to make gifts to your family from your property and you should make sure you review that option in the document if that is a concern for you one way or the other.

 In North Carolina if you sign a POA and later become incapacitated the POA must be recorded in the local Register of Deeds; most financial institutions will require that the document be recorded before honoring it in any event.  A financial institution may have other requirements and make the Agent jump through a few other hoops before accepting the POA, but ultimately once they are satisfied that everything is in order they will cooperate with Agent and allow the POA to work as intended.

 I am sure you get the point now about driving around without a spare tire.  A POA is something that you may never need, but if you do, you will be glad you have it.

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