Power of Attorney Explained: Types, Uses, and Why You Need One

A power of attorney is a legal document that lets one person act on behalf of another. In this episode, Ryan explains the main types, including general, durable, springing, and medical POA, and why having the right ones in place before you need them is one of the most practical things you can do for your estate plan.

The scenario that makes this most real: if you become incapacitated without a financial or medical POA in place, a court may appoint someone to manage your affairs, and you do not get to choose who that is. Ryan explains how to avoid that outcome, what each type of POA covers, and why this is usually cheaper and simpler to set up than most people expect. This is education, not legal advice; work with an estate planning attorney to put yours in place.

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If you have suggestions or feedback, please email us at: Podcast@AlchemyWealth.com

And, as always, Stay the Course!

Transcript

Introduction to Fiscal Physical Podcast

Speaker 1 0:01

Welcome to the Fiscal Physical Podcast . Join us each week as we sit down with the founder of Alchemy Wealth Management and author of your Fiscal Physical , Ryan Nelson . Tune in to gain valuable insights and practical tips as we simplify complex financial concepts into digestible lessons . From budgeting to retirement planning , this podcast is your go-to resource for mastering financial literacy .

Aaron Hoisington 0:33

Welcome everybody to this week's episode of the Fiscal Physical Podcast . My name is Aaron , I am here with Ryan Nelson and we are going to talk about some financial topics today , ryan , specifically one . Actually , let me digress here . How are you today , ryan ?

Ryan Nelson 0:51

How rude of me . I'm doing great . I'm doing great . How are you doing ?

Aaron Hoisington 0:56

Good man , I'm doing quite well . Thank you so much , and happy to be here , happy to dive in

What is Power of Attorney?

Aaron Hoisington 1:02

here . Today's topic we're going to talk about power of attorney , what it is and why you can't ignore it or shouldn't ignore it here . So a little backstory about myself . My sister is a lawyer . She's actually the county prosecutor for my hometown , or my home county , if you will . So she's , I guess , has . If I need financial or legal advice , that's where I go . She'll normally give me a little bit of free stuff and then she's like nah , you got to go talk to somebody else that kind of thing .

Aaron Hoisington 1:35

So I get a little bit of , and I know that one of the things that she's she has like a checklist that she's like given me of like oh cool , you need to do these things , and one is like really explore power of attorney . Make sure that this is set up like to be correct , Make sure you're comfortable with it , Revisit it at different points of your life . So and I'm like cool , awesome , Nodding along , yes , great .

Aaron Hoisington 1:59

And I'm like I don't really know of what that exactly means . So I'm hoping today , ryan I mean you're not an attorney , I wouldn't say a legal professional but hopefully you have a little bit more insight into what that is and kind of break it down for us there .

Ryan Nelson 2:09

Yeah , I know enough to be dangerous . So , yeah , like you said , this would be something . I wouldn't construe this as legal advice and definitely go talk to your own attorney , but let's at least share with the listeners what I do know , what little I do know . So what is a power of attorney ? So it's a legal document that allows one person to act on behalf of another person . So it is a legal document . I think this confuses a lot of people . Same with a trust . What is a trust ? It's a legal document . Right A will , it's a legal document , and so power of attorney sounds like this weird complicated thing . It's a document that allows something to happen . So in this particular legal document , it allows one person to act on another person's behalf . It can be limited or broad , and it can be given just for certain periods of time , so it could have an ending date to it or not be in effect yet and go into effect at some point in the future .

Ryan Nelson 3:06

So

Types of Power of Attorney

Ryan Nelson 3:08

there's a few different types of power of attorney . So there's general power of attorneys , limited power of attorneys , durable , springing , medical , financial you might hear a bunch of different ones . But so a general power of attorney is generally going to have broad authority over financial and legal matters . A limited power of attorney is generally going to have broad authority over financial and legal matters . A limited power of attorney is going to have power of attorney , but for a limited scope . So sometimes you'll see this if you need to have somebody else sign real estate closing documents for you or something , you can give power of attorney for them for the specific scope .

Ryan Nelson 3:42

And then durable power of attorney means it remains in effect if the person becomes incapacitated , whereas springing power of attorney only goes into effect after a specific event , usually incapacitation . So one I could just set up now it's going to , you know , it could just set it up and it's going to be in effect , like sort of theoretically forever . The other one , I might say , hey , I don't want it to go into effect unless I become incapacitated , right , so that'd be springing . That goes , it springs into effect , you can think of it . And then there's also medical or like a healthcare POA , and so that's going to allow somebody to make decisions regarding healthcare . So maybe you become again incapacitated or aren't able to make decisions on your own , who's going to step in and make those decisions on your behalf ? It's going to be whoever is a medical POA for you , or power of attorney . Poa is an acronym for power of attorney . You'll see POA a lot , perfect , so right . I know very little about healthcare POAs , but I know a decent amount about financial power .

Ryan Nelson 4:49

Yeah , exactly so why is a financial power of attorney

Why Financial POA Matters

Ryan Nelson 4:52

important ? So if someone , it allows someone else to kind of continuously um , manage your finances if , for some reason , you become incapacitated , so you might be thinking , well , if I'm incapacitated , why is that really that important ? The reality is , yeah , you probably still have bills , you probably still need to file your taxes , right . So there's all sort of these just almost like routine tasks regarding to your finances that right now you're the only one that can legally do right , and this allows you to give somebody else permission to file taxes on your behalf , make investment decisions on your behalf . If somebody was to call me and say , hey , I need money out of Aaron's account , aaron's in a coma I'd be like , well , I can't just give you .

Ryan Nelson 5:40

Aaron's money and they're like , yeah , but he wanted Sure .

Speaker 1 5:44

I need to pay for his kid's college .

Ryan Nelson 5:46

And it's like , well , it's gotta be Aaron that takes his money out of his account right Now . If you set up the appropriate power of attorneys , you could then designate somebody else to have that power and then they could call up , have that power , say , hey , we need this money from Aaron's account to pay for his son's college . Boom , that'd be allowed , right . So those would be some examples of why you might want to have this set up . And it helps avoid Because in the event that you like , let's say , you became incapacitated , there are processes that can .

Ryan Nelson 6:17

You might be thinking , well , like that's crazy , like if I become incapacitated , surely there's a process that allows something to happen , right ? And the reality is , yes , there is , but it can be this time consuming process of going through court , appointed guardianship , and so , again , if you want to avoid that time consuming part and the costs of court and just have the and make sure it's done the way you want , so you get to assign who you want , as opposed to have the court assign somebody , this gives you a little more control and it can be more cost effective . So I'd say it's a critical component of , like , a comprehensive estate , estate plan . Typically , if you go to an estate planning attorney and you have them build you an estate plan . They're going to build you out a trust , usually what's called a spillover will but these power of attorney documents are also going to be a part of that for most estate planning packages .

Aaron Hoisington 7:06

No , that's good man , and I think we've done a couple episodes on estate planning or similar , like will and probate and these different things too .

Aaron Hoisington 7:14

So I feel like this is just one of the factors that kind of ties into just I don't know , would this fall under estate planning ? I consider this estate planning . We maybe have hit on power of attorney before too , but I feel like it's a . It's a you hit on just in exactly this scenario I was thinking of . I was like hey , like you know , if I for some reason become incapacitated and maybe I didn't have these things set up , like okay , cool , like the last thing that you want to do and like maybe your loved one or somebody is in these states , is have to go through the court appointed process to somebody who maybe doesn't have exactly your best interests in mind too , and it's kind of sad to think about if that's the end of the situation . Plus , it puts more stress on individuals in a trying time already too . So like having something like this in place , a power of attorney , like seems like it might not be a bad idea , right .

Ryan Nelson 8:10

And you can imagine there's probably plenty of people who maybe say , you know , maybe they're separated , they have , you know , a child and they have , maybe a sibling , and they say , man , my sibling's not financially responsible . I'm no longer married . If something were to happen to me , I wouldn't want this to like default , go to my sibling or , like you know , I wouldn't want to like have to rely on this court process . I would want to be able to hand select maybe a good friend of mine or something like that , like I think they'd be more responsible or better suited to do this task . Or if you imagine , maybe you're , you have , you know , three kids and you know it might make more sense to Are they all

When to Set Up POA

Ryan Nelson 8:56

equally literate as far as finances go ?

Ryan Nelson 8:59

Maybe you make the one who's the most financially literate your financial power of attorney . Maybe you make the one who's most medically literate the medical power of attorney . But again , if you're doing this , so a great question is like when should you set this up ? You should do it before you need it , right , and when you're in proper like state of mind , right ? So when you're working , when you're like 100% , is when you want to be setting this up and then you can effectively make these decisions , determine kind of who would be best able to represent you , um , if needed , in these different areas of your life .

Aaron Hoisington 9:31

No , that's that's , that's good , that's good , that's good stuff . Man , I think it really kind of breaks down like the importance of it , just in , just in general . So , um , excellent , anything else you want to touch on with this one here , ryan ?

Ryan Nelson 9:46

No , I think I think that about covers it . So , yeah , just an important piece of an estate planning sort of project . So , as you go through this estate planning process , this should be a piece of that process and , again , most people should be doing this before you need it , so you might be listening to this saying oh , I don't need that . It's like you're right , you don't need it . That's why you should be setting it up now , because you might need it tomorrow Exactly . You just don't know .

Aaron Hoisington 10:09

That future planning . We think about it with financial planning and how all these pieces fit into that puzzle , if you will . And I think it's really cool , as we do these topics of how they intertwine with past episodes and probably future episodes that we're going to do just to kind of give you that , you know , increase that financial literacy just overall and just planning in general , and so I think it's neat that we're able to kind of do this . I mean , we're into the 90s for episodes here , which is crazy to think about , but I'm like , oh , we can go back to this one and this is kind of where it ties in and such too . So good stuff , as always , ryan . I hope everybody learned something or at least got intrigued by this . To do a bit more research on your end there , we'll go ahead and pause and we'll be right back on the other side of this . Everybody , hang tight .

Personal Finance: What is "Rich"?

Speaker 1 11:02

And now to put the personal in personal finance .

Aaron Hoisington 11:05

Welcome back to this side of the Fiscal Physical podcast . Here I have a question for Ryan . It is a financial question , so that's good . That feeds right into the theme of this podcast . Ryan , growing up we've we've reminisced on this podcast a few times about you know childhood stuff and you know what do we want to be when we grew up and all these different things . But , um , this one , I'm curious what your idea of when you were a kid ? What did you consider rich like ?

Ryan Nelson 11:37

as far as like seeing like cool that's oh that person's rich kind of thing , like , yeah , well , yeah , I don't , for some reason like an income level comes to mind . Uh , I don't know that I knew what a net worth is , or like even like how much a million dollars or a hundred thousand dollars or anything was Um , but I feel like like I always like , for some reason , like aspired to make like a hundred thousand dollars a year . It's a nice round number , um , I'm not sure why that particular number , but that's like , for some reason , I always like thought like that was the number , like if you could make a hundred thousand dollars a year , you'd be like golden , right , yeah , um . So I always thought that's like the first thing that comes to mind when I think of like quote unquote being rich , um , which is interesting Cause , I don't know , most people probably think of like a boats or like fancy cars or the nice watch or something like that . Yeah , um , but yeah , that's the first thing that comes to my mind . What about you ?

Aaron Hoisington 12:23

undergrad . I love it . It's funny I think back on it . When I was growing up and mine was even smaller about what rich was ?

Aaron Hoisington 12:32

I remember asking my dad I was like oh I was like because there was one time when I was growing up I wanted to go to this fast food place . My dad was like , no , we're going to eat at home , like whatever . And I was like , oh , one day when I'm rich , I'm going to eat whatever I want . Like he's like well , if you get there , you could do it . And in my mind I was like I'm going to make one day , I'm going to make $300 a day and then I can do whatever I want with that . And he's like it's a good goal to have , you know , growing up . So in my mind , $300 a day was rich to me . For some reason I never even did the math on what exactly that like I'll do it for you oh , thanks man yeah .

Aaron Hoisington 13:09

What are we working with ? $109,500 . Probably pre-tax . I didn't really think at seven or eight years old thinking about taxes or anything like that , but in my mind I was like if I make $300 a day , I can eat all the fast food I want . Like I don't have to ever eat , like I can , I can get whatever I want . So that number , for whatever reason , $300 a day I was like that's rich .

Ryan Nelson 13:33

That's funny . Yeah , yeah , so it sounds like we uh we landed on similar numbers as kids . That's weird .

Aaron Hoisington 13:38

It was funny when I , when I we were outlining this and everything , and I was like I was like I wonder what Ryan's number ? Because I mean I think about like growing up , like I knew what I had heard of like millionaires and certain things , like there weren't as many , I think billionaire talk when I was younger Like , but there was , there was millionaire , and I was like oh yeah , well , that's just like unfathomable wealth .

Aaron Hoisington 13:57

I guess , to me I just didn't make sense , but I was like , oh , breaking it down , you know , three hundred dollars a day , a hundred thousand , a hundred , a hundred grand , yeah , that could probably be done . So kind of kind of interesting there that we kind of land got two different paths but like land at the same destination there .

Ryan Nelson 14:11

I'm sure a large part of that depends on your upbringing Right , and like how much , yeah , oh sure , yeah , what . What kind of experience do you have as kids ? Um , would probably greatly shape that . We probably had like fairly similar upbringings .

Aaron Hoisington 14:23

So , yeah , it makes sense . I suppose it kind of makes sense where we land versus somebody who maybe , you know , grew up a little in you know , a little bit more affluent , like you know , a hundred grand they're like , you mean , my hundred grand a day , exactly , but , um , awesome . But I , I challenge listeners , listeners . I'd be curious what did you think ? I mean , what do you still think is rich nowadays ? I'm sure we get a ton of different answers as far as that goes , but , as always , please let us know what you guys want to hear . If you guys are liking this , hating this , like , subscribe wherever you guys get your podcasts . These drop every Tuesday morning on all the different platforms . So I'm looking forward to continue to grow our listener base . And , ryan , anything to say before we wrap up here ?

Ryan Nelson 15:07

As always , stay the course .

Closing and Contact Information

Speaker 1 15:10

Thank you for joining us for the Fiscal Physical Podcast . Until next time , happy listening and , as always , stay the course . If you have a question or topic suggestions , please email us at podcast at alchemywealthcom . If you enjoyed today's discussion , subscribe to the podcast to ensure you never miss an episode and consider leaving us a rating and review on your favorite platform . This helps other listeners like you find the show . For more resources , you can visit Alchemy Wealth Management's website at wwwalchemywealthcom or find your fiscal physical the Book on Amazon . We'd be remiss if we didn't mention that personal finance is just that personal . Please don't take anything we say as advice . The preceding content is for informational and entertainment purposes only . It's not an offer or a solicitation , nor should it be construed or relied upon for tax , legal or investment advice . It doesn't consider your personal financial situation or objectives and may not be suitable for you .