What Is Power of Attorney? POA Definition & Use

A Power of Attorney appoints someone to manage your financial or business affairs when you cannot.

To have someone make health care decisions for you, you can use a variation of this form called a Medical Power of Attorney.

Before you create a Power of Attorney, it’s crucial to understand what this agreement involves, how it works in real-life situations, and the related risks and responsibilities.

1. Power of Attorney (POA): Meaning and Definitions

Let’s start with the meaning of the Power of Attorney and some critical legal definitions:

A POA  is an agreement between two people (or parties), called the “principal” and the “agent”. Using this legal document, the principal agrees to give the agent “power of attorney”, or the legal right to represent the principal in specific personal affairs.

Principal: The principal creates a Power of Attorney and chooses who will represent them. The principal is sometimes called the “grantor.”

Agent: The Power of Attorney “agent” is the person appointed to make decisions on the principal’s behalf. They’re also called the “grantee,” or in some states the “attorney-in-fact” (which is different from an attorney-at-law, or a lawyer).

Incapacitated: When a person is unable to make decisions for themselves due to an injury, accident, or illness, they are legally “incapacitated.” For example, if someone has dementia or is unconscious (e.g., in a coma after a car accident), they are considered incapacitated.

Durable: Depending on the purpose of a POA, the agreement can be:

• Non-durable: The agreement ends when the principal becomes incapacitated
• Durable: The agreement stays in effect if the principal becomes incapacitated

2. Types of Power of Attorney

The contents of a Power of Attorney vary depending on how you use it. Therefore, the Power of Attorney forms have different names based on their duration and clauses.

The following are the main types of Power of Attorney and their uses:

General Power of Attorney

A general Power of Attorney gives an agent broad powers to handle your affairs and the authority to do almost any legal action that you can do. Instead of naming specific tasks you’d like the agent to carry out (e.g., selling a property), you grant general authority over a topic (e.g., real estate) and the agent makes decisions for you.

This type of POA is often called a Financial Power of Attorney because it’s commonly used for day-to-day financial matters. It can be durable or non-durable.

Special/Limited Power of Attorney

Unlike a general POA, a limited Power of Attorney (also called a Special Power of Attorney) only authorizes the agent to handle specific matters. For example, you could use this type of POA to have someone sign a single document when you can’t be there to do it yourself. It can be durable or non-durable.

One Durable Limited Power of Attorney type is a springing POA, because it “springs” into effect only in certain circumstances (such as your incapacitation).

Medical Power of Attorney

A Medical Power of Attorney (also called a Health Care Power of Attorney) is a Durable Power of Attorney that takes effect only if you become incapacitated and allows someone to make health care decisions for you. This type of POA is a way to plan for your end-of-life treatment and is part of an Advance Directive in many states.

2. What Does Power of Attorney Allow You to Do?

A Power of Attorney allows you to choose someone you trust to manage your affairs and ensure they’re handled in your best interest.

Some common uses of POAs include:

• Estate planning: an older person may choose an adult child or loved one to make important decisions about their money or health to plan for a time when they can’t make these choices themself
• Business: an individual may assign multiple POAs to different people and have them carry out individual tasks required to run a business smoothly
• Travel: an individual may set up a Power of Attorney to have someone handle their administrative tasks while they’re traveling or working abroad for an extended period
• Military: service members may use a Power of Attorney to manage their paperwork and life back home while they are deployed overseas

Specifically, an agent with power of attorney can be given authority to complete tasks such as the following on the principal’s behalf:

Financial:

• File taxes
• Make investments
• Buy or sell a property
• Cash checks
• Make gifts to people or charities
• Buy or sell a vehicle
• Refinance a mortgage
• Apply for public benefits on the principal’s behalf (e.g., social security)
• Access safe deposit boxes

Medical:

• Choose medical treatment
• Decide where the principal lives
• Pick who treats and bathes the principal (e.g., which doctors or nurses)
• Select what the principal eats

What Does a Power of Attorney NOT Allow Me to Do?

There are several things an agent can’t do when given power of attorney, including:

• Make decisions for the principal if they die (you can’t use power of attorney after death)
• Transfer the power of attorney to someone else
• Vote on behalf of the principal in an election
• Change or override a last will and testament

In addition, an agent with Medical Power of Attorney may be able to make health care decisions for a principal when they’re incapacitated. Still, they can’t go against their end-of-life treatment wishes described in their living will.

3. How Does Power of Attorney Work?

Here’s how power of attorney works:

First, the principal chooses one or more people they trust to manage their affairs. Then, they sign and date a Power of Attorney form, which describes the duration of the power of attorney and the type of authority granted.

You can edit the form to:

• Grant general or specific authority
• Be durable or non-durable
• Become effective immediately or upon a future event
• End at the principal’s incapacitation, a specific date, when the principal dies, or when the specified task is complete

Legal requirements for powers of attorney differ by state. As of 2021, 29 states have enacted the Uniform Power of Attorney Act (UPOAA), which sets rules regarding the creation and use of powers of attorney. However, it’s essential to check the regulations for your state to ensure your form is legally binding.

For example, many states require a power of attorney to be signed by witnesses and for the principal’s signature to be acknowledged by a notary public (a government official who verifies the identity of signatures to prevent fraud).

All parties should keep copies of the completed form, and the original should be stored somewhere safe. If a power of attorney is durable, it’s recommended to record it at a courthouse.

How to Sign as Power of Attorney (and Use a POA)

Once a Power of Attorney is effective, the agent has the ability to sign as power of attorney and make decisions on the principal’s behalf.

To have an agent use a general Financial POA, the principal typically needs to contact the third party (such as a bank) in advance, and show the original signed Power of Attorney form (or a certified copy), as well as the IDs of both the agent and principal.

Once the agent has been confirmed or added to the account, they can sign for transactions as follows:

[Principal’s name]

Revoking Power of Attorney

A principal can revoke a POA at any time by completing and filing a Revocation of Power of Attorney. For example, they may wish to do so if they no longer trust the agent, they have returned from overseas and no longer need to use a POA, or if they get divorced and need to appoint a new agent (instead of their spouse),

You can’t revoke a Durable Power of Attorney if the principal is already incapacitated. In a complex case such as a principal being diagnosed with Alzheimer’s disease, they can still revoke the POA if a court determines they are mentally competent.

It’s possible to override the Power of Attorney if you suspect an agent of abuse or negligence. You may need to take the matter to court and provide evidence that the agent is not acting in the principal’s best interest.

4. POA Risks and Responsibilities

Giving someone power of attorney is one of the most important legal decisions you can make because it grants the other person significant authority over your life.

An agent has a “fiduciary duty” to the principal to act in their best interests — which means they have a legal obligation to do what’s best for them. However, there are numerous risks involved, such as:

• The agent might make financial decisions for their benefit
• The agent might make irresponsible or biased decisions when given power of attorney over an aging parent’s affairs
• When an agent is given extensive power, they may not act as the principal intends
• The power of attorney may not be broad enough, and the agent is restricted from helping the principal how they intended

One way to avoid these issues is to draft your Power of Attorney to include safeguards, such as ensuring your agent reports all their actions to an attorney.

Choosing an Agent

The best way to avoid risk with a Power of Attorney is to choose the right agent. Remember that you can select multiple agents for different tasks and assign responsibilities based on the agents’ strengths and character.

Many people choose a spouse as their agent. This can create problems for durable and medical powers of attorney if the spouse is a similar age to the principal, as they may also face age-related health challenges.

Naming adult children is a standard option because they will be younger, but this can create conflict when one sibling is given power of attorney, and another feels they’ve been mistreated. You should never name one of your children to be your agent because of fairness if you lack trust in their ability to handle your affairs.

Power of Attorney and Guardianship

If an adult becomes incapable of making decisions (such as due to mental disability) but hasn’t created a POA, a loved one would need to get legal guardianship to manage their affairs for them.

The difference between Power of Attorney and guardianship (also known as conservatorship) is that a court can only appoint a guardian, so it’s a lengthy and less private process.

Suppose you’re worried about your elderly parents not having a Power of Attorney. In that case, you should talk to them about the risks of not having one, the legal costs of getting guardianship, and the stress involved. Setting up your POA is an excellent way to broach the subject while also planning for your future.

Further read: How to Get Power of Attorney for an Elderly Parent or Loved

5. Conclusion: What Does Power of Attorney Mean for Me?

Now that you know the essentials of Power of Attorney, let’s summarize what this vital legal agreement means for you.

Using a Power of Attorney to have someone legally make decisions on your behalf can make your life easier in many situations, such as taking care of financial matters when you’re unavailable to sign paperwork. Choosing someone to make decisions for you if you’re unable to is also a good way to plan for the future and your retirement.

However, it would be best if you only gave Power of Attorney to someone you trust. Giving someone this authority over your life is an important decision, so be sure to choose the right agent, and use a Power of Attorney form legally binding in your state.

If you’re not entirely confident in navigating the complexities of this document — or in placing your trust in someone to make these important decisions for you — it’s in your best interest to involve a lawyer in this process.

Sources:

• https://www.law.cornell.edu/wex/power_of_attorney
• https://www.consumerfinance.gov/ask-cfpb/what-is-a-power-of-attorney-poa-en-1149/
• https://www.bankofamerica.com/life-services/power-of-attorney/