Help yourself and your loved ones by selecting someone now to give legal decision-making authority over your personal care and finances in case you become incapacitated after an accident or illness. An individual’s spouse typically has the authority to make personal and healthcare-related decisions for the individual, but this does not extend to property and assets owned by the incapacitated individual. For example, retirement accounts and IRAs cannot be accessed by anyone but the account owner without proper legal authority.
Most states permit an individual to appoint someone to act on their behalf in handling property and financial matters, including matters relating to IRAs. The person making the appointment is usually referred to as the “principal.” The person being given authority to act on another person’s behalf is usually referred to as an “agent” or “attorney in fact.” A Power of Attorney (POA) is the document used to make the appointment and outline the specific powers being granted to the agent. People typically use a POA to appoint someone to handle their affairs in case they become mentally incapacitated in the future, but a POA may also be used for a temporary situation, such as when an individual will be hospitalized or out of the country for an extended period.
Powers Granted
POAs may be used to authorize broad powers to the agent, which may be appropriate when granting powers to a spouse. POAs may also grant very limited authority to the agent. For example, a limited power POA might give the agent only the authority to sell the principal’s house. In this case, the agent has no authority with respect to the principal’s property other than the house and would not be authorized to handle any matters relating to the principal’s IRA or other financial accounts. Other specific powers granted in a POA might address the ability of the agent to make gifts of the principal’s personal property and the ability of the agent to name themselves as the recipient of a gift. The laws of the state in which the POA was executed may dictate any requisite language and any limitations on the authority granted to the agent.
If you’re establishing a POA, be specific about the powers you want your agent to have for your self-directed IRA. Powers commonly granted include the ability to make IRA contributions and to take IRA distributions. A POA may be limited to grant specific powers, such as managing investments. With this POA, the agent could buy and sell investments within the IRA but could not request withdrawals.
Terminating a POA
As the principal establishing the POA, you may terminate or revoke the POA at any time. If you change your mind about the powers granted or the agent who is to assume those powers, you can terminate the POA and execute a new one. Be sure to communicate the termination to any party that has been provided a copy of the POA, so there is no question in the future as to the validity of your POA. All POAs expire upon the death of the principal, so this document is not used to name a personal representative of your estate after your death. You may also specify whether the POA is durable or non-durable:
- A durable POA stays in effect after the disability or incapacity of the principal.
- A non-durable POA ceases to be effective upon the incapacity of the principal.
Make Your POA Specific
To ensure a POA is honored by an IRA custodian or other entity holding financial accounts, consider these factors as you develop a POA:
- Identify your objectives for establishing a POA and grant specific powers accordingly.
- Select a durable or non-durable POA, as appropriate for your objectives. Note: Check with your custodian prior to finalizing your document as not all accept non-durable POAs.
- If you want to appoint more than one agent (e.g., adult children), be specific about the authority given to each agent and whether each agent has the authority to act without the consent of the other agents.
- Execute the POA while you are of sound mind to legally enter a contract to avoid challenges by a custodian, family member, creditor, or other party.
Having an executed POA in your files can provide comfort to you and your loved ones knowing that your spouse, for example, will be able to direct investments in your IRA or take money out of your retirement plan if you are someday unable to conduct those transactions yourself. To acquire that legal authority without a POA, your family members would need to petition a court to grant a formal conservatorship or guardianship. This process can take up precious time and incur legal fees.