What is a Power of Attorney?
This written document officially recognizes a legally binding relationship between two parties — a Principal and an Agent. The Agent is given the power to manage the personal, business, or legal affairs of the Principal.
Further, the Agent has a fiduciary duty to act in the Principal’s best financial interest and follow their wishes.
Powers of Attorney are commonly used when someone wants the peace of mind that their financial or health decisions will be made by someone they trust.
You may need this form if you are:
- Over the age of 18 years old
- Military personnel being deployed overseas
- Traveling abroad for an extended period
- Diagnosed with a chronic condition or life threatening illness
- Growing wiser and older but concerned about your current health
- Married and want your spouse to have legal authority over property you own
- Engaged in a high-risk profession (i.e., emergency firefighter or member of the police force)
What should be included?
A simple POA will identify the following essential elements:
- Agent(s): a responsible and trustworthy person acting on your behalf
- Principal: person assisted with personal, business, or legal matters
- Grant of Authority: general or specific authority to take certain actions
- Effective Date: when the form effectively begins, usually immediately
- Signatures: the Principal and a Notary must sign the document
As a reference, a Power of Attorney, Principal, and Agent have other names:
Other Names
Power of Attorney | Principal | Agent |
---|---|---|
POA | Grantor | Attorney-in-fact (AIF) |
Letter of Attorney | Donor | Health care proxy |
Surrogate decision maker |
What happens if you don’t create this form?
A Power of Attorney can help make your life much easier by allowing someone you trust to take specific actions on your behalf. Without this document, you might not be able to travel out of town, make certain investments, or handle business or personal affairs.
In addition, if you ever become incapacitated, without this document, even if you have a spouse, the court may need to step in and appoint a guardian or conservator for you.
The process of appointing a guardian is costly and requires the guardian to report your situation to the court each year formally. CNN Money estimates that obtaining a court-appointed guardian exceeds $1,000.
Instead, a Power of Attorney allows you to take back control and proactively choose who YOU want to represent your best interests. By taking the time to create this important document, you can prevent both individual and familial suffering.
Preventable Suffering: Individual And Familial
Individual | Familial |
---|---|
1. EXCESS COSTS | 1. EXPENSIVE LAWYER FEES |
Guardianship hearing in court | Advocate for a guardian |
Family members disagree | Dispute the court decision |
2. EMBARRASSMENT | 2. PUBLIC EMBARRASSMENT |
Declared legally "incompetent" | Privacy of sensitive family situation goes before court |
Loss of personal dignity | 3. LOSS OF CONTROL |
3. LOSS OF CONTROL | Unable to administer your family member’s wishes |
Court appoints a guardian | 4. MENTAL ANGUISH |
Your wishes are not respected | Family fights over who should be the guardian |
Your finances and legal actions are in the hands of someone you did not choose | |
4. LOSS OF TIME | |
Unable to respond quickly to pressing matters until court appoints a guardianship |
The AARP, Inc., formerly the American Association of Retired Persons, also provides a helpful FAQ about the importance of having this document.
Types of Power of Attorney Forms
This document can be used to handle various situations and can be customized based on your need. You can grant a POA related to different areas of your life, with varying degrees of power for the agent and any timeframe you desire.
Financial vs. Medical POAs – What’s the difference?
Non-medical matters related to business or personal affairs can be covered in a Financial POA. A Medical POA can cover medical decisions about your health care. Most individuals have separate documents for general matters and healthcare issues.
Financial
A Financial Power of Attorney allows you to name your business or personal agent, someone who will make decisions or take actions on your behalf if you cannot. Your company or personal agent will ensure that other parties communicate and consider your wishes.
Suppose you are out of the country when you are closing a business deal, paying a professional to manage your assets, keeping a personal assistant to do all of your banking and errands, or allowing your child to travel with a family friend.
In that case, you can grant an agent power of attorney to sign documents on your behalf and/or make decisions for you.
Medical
A Medical Power of Attorney allows you to name your health agent, someone who will make health decisions for you if you cannot.
Your healthcare agent will also ensure that your providers give you the care you wish to receive. You can also require your health care agent to communicate about any specific proposed health care. For example, you may still be able to communicate by blinking your eyes.
Many states, however, combine a Living Will and Power of Attorney into one “Advance Directive” form.
Financial vs. Health Care POA
Financial POA | POA for Health Care |
---|---|
1. ASSET MANAGEMENT | 1. MENTAL HEALTH TREATMENT |
Access your bank accounts | Admit or not admit you into an institution for mental diseases or state treatment facility |
Sign checks for you | Consent or not consent to experimental mental health research or psychosurgery |
Pay your bills | 2. NURSING HOMES |
Manage your investments | Admit you into a nursing home |
Special (Limited) vs. General POAs – What’s the difference?
A Power of Attorney can be created for different purposes with varying levels of authority granted to the Agent. The Agent can act as your agent for one specific action or all affairs about a particular aspect of your life.
Special (Limited) Power of Attorney
A Special or Limited POA gives an Agent the power to act on your behalf, but only specific powers. You can create several Special POAs, with different agents granted different powers.
Here is a list of some of the specific powers you can grant to your Agent:
- Sign checks
- Withdraw money
- Make a gift
- Create, amend, revoke, or terminate an inter vivos trust
- Create or change rights of survivorship
- Create or change a beneficiary designation
- Authorize another person to exercise the authority granted by the power of attorney
- Waive the principal’s right to be a beneficiary of a joint and survivor annuity, including a survivor benefit under a retirement plan
- Exercise fiduciary powers that the principal has the authority to delegate
General Power of Attorney
A General POA gives an Agent broad power to act on your behalf, taking any action or making any decision that usually falls to you.
Here is a list of some of the general powers you can grant to your Agent:
- Sell real property or tangible personal property
- Buy and sell stocks and bonds
- Handle all banking
- Operate a business
- Buy insurance and annuities
- Manage estates, trusts, and other beneficiary interests
- Handle all claims and litigation
- Manage all personal and family affairs
- Prepare and file taxes
State statutes may limit the powers granted under a General Power of Attorney.
Special vs. General Power of Attorney
Special | General |
---|---|
Limited Purpose
| Broad Purpose
|
Non-Durable vs. Durable vs. Springing (Conditional) POAs – What’s the difference?
Depending on your circumstances, you may want your Agent to begin acting on your behalf immediately using a Non-Durable or Durable Power of Attorney or later using a Springing (aka “Contingent”) Power of Attorney. These variations answer two questions:
- When should it take effect?
- When should it end?
All Powers of Attorney end at the time of death. At that point, a Last Will and Testament hopefully takes over.
Non-Durable
A Non-Durable Power of Attorney is usually limited to specific situations and becomes effective immediately upon signing. It automatically ends when the situation is no longer in effect or you die or become incapacitated. You can also rescind it at any time.
Durable
A Durable Power of Attorney also becomes effective immediately upon signing. However, it allows the Agent to continue acting on behalf of the Principal even when they become incapacitated.
This type ends automatically when you die, but you can also rescind it as long you are not incapacitated.
Springing (Conditional)
A Springing or Conditional POA only happens if a specific event or condition occurs. It can end at a particular time when you become incapacitated or die.
Non-Durable vs. Durable vs. Springing Comparison
Non-Durable POA | Durable POA | Springing POA |
---|---|---|
Goes into effect IMMEDIATELY | Goes into effect IMMEDIATELY | Goes into effect at a LATER time (i.e., when you become incapacitated) |
Incapacity might need to be proven | Incapacity does not need to be proven | Agent must prove event or incapacity (i.e., via doctor's letters) |
Ends when Principal revokes it or if Principal dies or becomes incapacitated | Stays in effect even when you are temporarily or permanently unable to make decisions | Termination can be non-durable or durable |
Ends when Principal dies |
How to Give or Get Power of Attorney
To give or get a Financial or Medical Power of Attorney, prepare a power of attorney with the following details:
- Principal’s name
- Agent’s name
- Durable or non-durable
- Effective date or springing condition
- The special or general powers granted
- Signatures
Have you recently been granted Power of Attorney by an elderly relative? The extra responsibility may add tension between family members, causing issues at home. Here are some tips on preventing family feuds.
How to Protect This Document from “Powerlessness”
If you take the time to create a Power of Attorney, you want to make sure that it will be effective. There are situations where your document may be rejected or “powerless” if you aren’t careful. Here are a few steps you can take to help ensure your POA won’t be “powerless”:
- Use a state-specific form – Each state has different laws and statutes governing this document. Our state-specific forms are customized for each particular state.
- Make sure you have all signatures and authorizations – Some banks and financial institutions have specific requirements for who needs to sign the document.
- Keep it up-to-date – If your state has rewritten its laws or your document is more than several years old, it may be considered ‘stale’ and need to be updated.
- Get it witnessed and notarized – Sign your document before witnesses, stating that you were competent and signed it voluntarily. Also, make sure to get your document authenticated by a notary public.
How to Terminate, Void, and Revoke a Power of Attorney
If you decide you no longer want a Power of Attorney, you can take the following active measures to terminate it, provided you are still legally competent:
- prepare a Revocation of Power of Attorney
- destroy the document
- follow any termination procedures detailed in the document
The document also automatically terminates when:
- the Principal dies
- the Principal becomes incapacitated (if non-durable)
- the Agent dies or is declared legally incompetent, and there is no successor named
If you do decide to void a Power of Attorney, you should notify any banks, businesses, or other institutions that might be affected.
Frequently Asked Questions
Who should be my agent?
Your Agent or Attorney-In-Fact (AIF) should act in your best interests and handle your personal or financial affairs.
An Agent should have the following attributes:
- Competent
- Trustworthy
- Physically healthy
- Lives near you
- Sound of mind
- Financially secure
- Experienced in financial matters
- Understand your concerns, priorities, philosophies, and life values
- Strong advocate for you if professionals or institutions are unresponsive
- Willing to take on the responsibility and faithfully carry out your wishes
- Capable of handling conflicting opinions from family and professionals
Further, an Agent does not necessarily have to be an individual or even one person. An Agent can be an institution like a bank, or you could have Co-Agents like your two children. If you appoint co-agents, specify whether they can act independently or must act together. Be sure to clarify how disputes should be resolved if the Co-Agents disagree.
What else can be included?
You can nominate a guardian and ask the court to appoint a guardian of your choosing if it becomes necessary.
Will another state recognize my document?
Most states will recognize any POA that is validly signed in another state. So if you make a valid document while living in one state and then moving to another, your paper will still be helpful in your new residence.
However, it may be an excellent opportunity to update your document and prevent it from being “stale”.