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Life is full of unexpected events, and sometimes these can severely impact your ability to manage your financial responsibilities – especially if you own a business. This is where a financial Power of Attorney (POA) emerges as an essential tool in your financial plan, allowing you to appoint a trusted individual to oversee financial matters in times when you’re unable to.
Safeguarding Your Assets with a Financial POA
At its core, a financial POA is a legal document that appoints an individual you trust to handle your financial affairs, from investment decisions to timely bill payments. Your attorney or agent steps in when you’re unable to manage your financial tasks yourself, whether due to absence or incapacity.
But it’s more than just a way to manage personal finances: A POA is also a strategic tool for protecting business assets—a crucial consideration for business owners—allowing for the uninterrupted management of business affairs in times when you can’t be there.
The Impact of a POA on Business Continuity
Let’s take a close look at Sarah, the owner of a boutique design firm. She’s the primary decision-maker of the business, but an accident leaves her incapacitated. With no POA in place, her firm faces operational paralysis: No one has the legal authority to make financial decisions or manage business transactions on her behalf, leaving employees and clients in limbo and risking the business’s continued stability and future prospects.
In this situation, a POA would have been a safeguard to ensure business operations continue smoothly despite Sarah’s incapacity. Her designated attorney would have the authority to make any necessary financial decisions, handle client negotiations, and keep the firm afloat. But because she doesn’t have a POA, the business now faces the risk of disrupted cash flow, unmet contractual obligations, and the loss of client trust—all factors with a lasting impact on the firm’s viability and reputation.
General vs. Enduring POAs
The timing of when a POA becomes operational hinges on the concept of capacity, which refers to your ability to understand and make decisions about your affairs. Capacity is the key factor that determines which type of POA is appropriate for your specific needs.
A general power of attorney can grant authority over a wide range of financial activities, covering everything from daily transactions to large financial decisions, and remains effective for as long as you retain capacity. And, if needed, you can tailor it to be specific or limited, meaning the POA is focused on particular tasks or time frames—for example, managing a real estate sale, overseeing a specific investment decision, or handling your financial affairs during a three-month period while you’re out of the country.
While a general POA is no longer effective if you lose your decision-making capacity, an enduring or continuing POA, on the other hand, is specifically designed to become operational only when you become incapacitated. It’s a forward-thinking tool meant for long-term financial management, to ensure your financial responsibilities are taken care of according to your wishes in the event you aren’t able to make your own decisions.
Why Accounting Insights Matter for Your POA
When it comes to managing your financial affairs, a POA wields a tremendous amount of power—after all, it’s a legal document that gives another individual the right to make financial decisions for you. Common risks of an inadequately prepared POA include misinterpretation of legal terms, overlooked tax implications, and the failure to account for changes in financial legislation.
To avoid these missteps, it’s crucial to involve professional advisors in setting up and managing your POA. A firm like Zeifmans, for example, with its extensive financial management expertise, can be invaluable in crafting a POA that addresses all aspects of your financial life.
Ready To Set Up Your POA?
Ensuring that your POA is effective and reflects your financial wishes can be challenging—but you don’t need to do it alone. Our team of experts at Zeifmans is dedicated to guiding you through every aspect of creating and managing your POA. Contact us for a consultation and take the first step towards safeguarding your financial future.
