Are you under the impression that you will easily be able to make all financial decisions for your spouse should he/she become incapacitated? Marriage alone is often not enough. In our small section of the mortgage industry, we often find that people are unaware of the requirement to have written legal authority. Since we are speaking with clients over the age of sixty two years old, it is common to hear of one spouse having early signs of Alzheimer’s or having a stroke that leaves them incapacitated. It is never too early to be prepared for this difficult situation.
What Is a Power of Attorney (POA)?
A “Power of Attorney” is a written document in which you appoint someone else to act for you (as your agent). POA’s can differ depending on when you want the powers to begin and end and on how much responsibility you want to give your agent.
To create a power of attorney that can be used for real estate transactions, such as a reverse mortgage, remember to:
- Make it a durable POA
- Have it specifically authorize your agent to manage real estate transactions
- A durable POA begins when you sign it
- A durable POA stays in effect for your lifetime unless you cancel it
In What Situation Might One Be Needed?
If it is clear that your spouse is no longer able to make his/her own financial decisions, then we will require that you have legal authority to act on his/her behalf. The problem that we commonly find is that people are ill prepared for this scenario, partly because it is not an enjoyable conversation. Who wants to talk about the day they can’t handle their own affairs?
You can only execute a power of attorney, and get it notarized, if you are of sound mind. In a situation where you need the legal authority to take out a mortgage loan, and your spouse didn’t have grant you power of attorney, you will need to get permission from the court to become a conservator or guardian. Unfortunately, that can be an expensive and time consuming process. It can also be uncomfortable due to how in depth and invasive it is.
Why Is All of this Necessary?
In the past, one could take out a reverse mortgage in certain situations (and certain states) without the approval of their spouse. Generally speaking, it was in situations where the non-borrowing spouse was never on title to the home or didn’t occupy the property as his/her primary residence.
As of August 4th of this year, your spouse will have to be involved in the process. He or she will be required to be counseled (by an independent, HUD-approved agency), and will have to sign several application and closing documents. The only way to escape that responsibility is if one is mentally incapacitated and has a POA, guardian, or conservator.
What Are the Risks?
The main risk with naming someone your agent is that they can immediately begin handling your affairs, unless you institute a springing power of attorney. A springing power of attorney requires a certain event to take place before it is in effect. If you go that route, you’ll need to be very specific about the “springing event” that invokes the POA.
It’s important to select someone that you trust as your POA. Due to the authority the document provides, your POA will have the ability to do damage if not acting in your best interest. The good news is that you can cancel a POA at any time, assuming you are still of sound mind.
How To Prepare A Power Of Attorney?
Due to the complexities of the issues mentioned above, and varying state laws, we feel it is important that you meet with an elder law attorney to get a POA and other documents drafted. If you need to get it done at a lower cost, there are POA templates online that you can access.