Understanding Financial Power Of Attorney
A financial power of attorney is a legal document that gives one person, the agent, authority to make decisions, initiate and complete transactions, and other carry out business related to a variety of financial matters on behalf of the principal, the person who creates and signs the document. Financial powers of attorney are commonly used in estate planning, but they can carry some risks and drawbacks. Carefully tailoring the terms set out in the document itself can help to maximize benefits and limit the potential for harm. To discuss how a Florida financial power of attorney might fit with your overall estate plan or to get help drafting a customized power of attorney, reach out to Loughlin Law, P.A. by calling 561-556-3847, or visit our website to schedule your personalized estate planning consultation.
Why Is It Called a “Financial” Power of Attorney?
Many states use a legal document called a medical power of attorney as a form of advance directive that allows the person who creates the document to designate someone to make important medical decisions in their place if the principal is unconscious or otherwise incapacitated and cannot make informed decisions for themselves. The function of this type of power of attorney is very similar to that of a Florida Designation of Health Care Surrogate; sources in some jurisdictions will also refer to this type of document as a designation or authorization of healthcare proxy.
In states like Florida, where the document that is used for designating a surrogate or proxy to make medical decisions on the principal’s behalf in the event that this person, temporarily or for an extended period, lacks what § 765.203 Fla. Rev. Stat. (2024) calls “decision-making capacity” is not formally called a power of attorney, it may not be necessary to specify “financial” in discussing a power of attorney, as a power of attorney in Florida will generally refer to a document granting authority in financial matters. Because the use of power of attorney documents to designate proxies or surrogates for medical decisions is so widespread, however, Florida residents and the professionals who assist with their estate plans may sometimes refer to “financial powers of attorney” in order to avoid confusion. The added clarification can be especially helpful when working with clients or colleagues who are accustomed to the legal terms used in other states – a situation many are likely to encounter in Florida, owing to the relatively high number of individuals who move here from other parts of the country. However, “power of attorney” with no added description will usually mean a power of attorney for financial matters.
What Are the Risks of a Financial Power of Attorney?
The risks associated with a financial power of attorney can vary somewhat, depending on how the document is written. Some powers of attorney are drafted so as to limit the scope of the agent’s powers, or to specify particular types of actions or transactions the agent is not authorized to conduct. Other powers of attorney may be worded so as to ensure the agent’s powers will be effective across the broadest possible range of circumstances, in an attempt to prepare for an unpredictable future.
When the agent named in a power of attorney accepts the authority outlined in the document, they assume a fiduciary duty with respect to the principal, according to the Florida Bar Association. In an ideal world, awareness of this duty would serve as effective protection against financial abuse. There are a couple of reasons, however, why an agent’s acknowledgement of their fiduciary duty may not entirely eliminate the financial risks associated with a power of attorney.
Flawed Decisions
The first reason is simple human error: Fiduciary duty obligates the agent to pursue the principal’s best interests in good faith. Assuming the agent adheres to this requirement, the mandate to act in good faith and in pursuit of the principal’s best interests, rather than seeking to exploit the situation for personal gain, will preclude deliberate or malicious abuses of the power of attorney. However, acting “in good faith” is no protection against making mistakes. If, as is often the case, the agent has broad authority to exercise their own discretion, then the principal is open to whatever risks arise from the strengths or weaknesses of the agent’s decision-making.
Limited Oversight
The second reason is that many power of attorney arrangements have limited oversight. While § 709.2116 Fla. Rev. Stat. (2024) does provide for a Florida court to review the validity of a power of attorney, or of the legitimacy of the agent’s actions (e.g., by alleging that the agent has not fulfilled their obligation to act in the principal’s best interests), and to terminate or remove the agent and otherwise grant appropriate “judicial relief,” only certain parties are eligible to file the petition necessary to initiate the judicial review. Since generally speaking a principal in good mental and physical health, not acting under duress, who suspected that the agent named in their power of attorney was acting inappropriately, would in most cases handle the situation independently outside of court by revoking the power of attorney, in practice the process for judicial review requires someone other than the principal to develop concerns and file the necessary petition with a Florida court. Parties directly involved in the care of the principal – such as guardians and physicians – may be eligible to file the petition for judicial review if they can show that the agent’s actions adversely affect the areas in which they are charged with the principal’s care; § 709.2116 also leaves the door open to petitions lodged by “other interested parties,” but they will face a requirement to persuade the court of their own commitment to acting in the principal’s best interests.
The sum of all these legal requirements and procedures is that, although there may be recourse for removing an agent who is abusing their power of attorney, challenging a financial power of attorney is not a straightforward process, and the judicial review required to terminate the power of attorney or remove the agent will take time. An agent who is determined to take full advantage of the opportunity to exploit their position can cause considerable damage both before a third party notices anything is amiss, and between the filing of a petition and the conclusion of judicial review. Thus even a case of abuse that is ultimately addressed with appropriate relief can cause a great deal of uncertainty, confusion, stress, and hardship over an extended period of time.
Protecting Against Financial Power of Attorney Risks
The two main strategies for protecting against the potential risks that can be involved in creating a financial power of attorney are both based on making careful selections in the drafting process for the power of attorney document. These are:
- Choosing a financial power of attorney agent
- Choosing the specific powers granted to the agent in a financial power of attorney
An experienced Florida estate planning attorney with Loughlin Law, P.A. may be able to review your situation and help you determine the most appropriate combination of agent and powers to meet your estate planning goals.
Durable vs. Non-Durable Powers of Attorney
Related to the degree of risk involved in entrusting an agent with one’s financial matters is the durability of the power of attorney. “Durable,” as defined under Fla. Rev. Stat. (2024) § 709.2102, means that the principal’s incapacity does not automatically result in a termination of the agent’s authority. Florida is one of the states in which a power of attorney is not considered “durable” by default; a durable financial power of attorney in the Sunshine State will need to include terms specified under § 709.2104 Fla. Rev. Stat. (2024), acknowledging the principal’s intention for the agent’s authority to remain in effect even if and when the principal becomes incapacitated.
Individuals preparing a financial power of attorney as part of their advance care planning or other estate planning strategies should consider carefully whether making the power of attorney durable is important to ensuring that the document will function as intended. Generally speaking, if you are creating a power of attorney in order to make sure that someone you trust will be able to access your accounts and continue conducting financial transactions on your behalf in the event that you are someday incapacitated by illness or accident, then it may make sense to create a durable financial power of attorney, and you may also wish to consider a “springing” clause that means the power of attorney takes effect only if and when certain conditions specified in the document (such as a declaration of the principal’s incapacity by a medical professional) are met. If your goals for the power of attorney are more limited, on the other hand, then a non-durable power of attorney may be a more appropriate option that incurs less long-term risk – balanced by giving up some potential for long-term efficacy. A discussion with a Florida estate planning attorney may help you to evaluate the possibilities that fit your needs.
Schedule a Consultation With an Estate Planning Attorney
A financial power of attorney can be an extremely flexible and useful estate planning tool, with potential uses not only in advance care planning but even in business succession planning and in establishing continuity for personal and family accounts in the event of extended illness or absence. However, there are some risks that can come with granting substantial authority over your affairs to another person. Consider scheduling a conversation with an experienced Florida estate planning attorney at Loughlin Law, P.A. to discuss strategies for tailoring a Florida financial power of attorney to meet your specific needs. Reach our Boca Raton office today by calling 561-556-3847, or visit our website to schedule a virtual consultation.
