What is a power of attorney (POA)? A comprehensive guide

Power of attorney (POA) documents give one or more people the power to act on your behalf as your attorney-in-fact or agent when you aren't able to be there in person or are otherwise mentally incompetent or physically unable to represent yourself.

There are many times when having a financial power of attorney is essential, including some garden-variety occasions when a POA document is simply convenient. For instance, you might give someone like your real estate professional limited financial power of attorney to handle the real estate closing for the purchase or sale of your home so you don't have to show up. Or you might give someone limited power of attorney to go to the DMV and sign an automobile title on your behalf.

In both of these cases, your attorney-in-fact will need to have the actual power of attorney document in hand to be allowed to do this. One exception is that your attorney-in-fact probably won't need a power of attorney in hand to sign a check on your behalf. That's between you and your bank.

You can set a power of attorney only to take effect if there is some future event that leaves you unable to act on your own behalf because you are mentally incapacitated or have a physical disability. This is called a springing power of attorney, which takes effect immediately after medical events that leave you incapable of making your own decisions.

Related to a springing POA is a broader healthcare power of attorney that gives someone the ability to make health-related decisions when you aren't able to. For instance, you might name your spouse or an adult child or children, a close friend, or any trustworthy agent to talk to your doctors and prevent treatments that you don't want. They also can make medical treatment decisions and keep paying bills and otherwise act independently when you can't. This agent will have broad powers.

We'll talk about these and other types of power of attorney in more depth below, including some considerations for crafting legally binding documents. Your goal will be to make sure the power of attorney remains enforced through any challenge.

What are the limits of a power of attorney?

No matter which type of power of attorney you choose, remember this: It will no longer remain valid or legally binding when you—the person who created the power of attorney—dies. After that, the trustee of the trust, executor of the will, or, as they are known in some states, personal representative, has responsibility for carrying out all aspects of the estate plans created by your estate planners. This can be a troubling problem for widows who lose power of attorney and can no longer access bank accounts they previously had signing powers over. It is an issue worth considering when setting up a power of attorney between spouses.

Otherwise, a power of attorney authorizes limited powers. It stipulates who should manage your financial matters when you're unable to, under what specified circumstances, and what specific wishes you want to be carried out. A power of attorney can also be set up for the purpose of making medical decisions.

The attorney-in-fact named in a power of attorney document takes responsibility for making decisions on your behalf after the power of attorney goes into effect. Whether this is a short- or long-term situation, the person named in the legally binding document will be responsible for making decisions on your behalf as a fiduciary. That means they are required by law to manage your money and real property for your benefit and in your best interests, not theirs.

This person doesn't need to be a lawyer. That said, there are advantages to involving a lawyer—someone who will handle both your powers of attorney and your estate plan. These can be complicated issues, and using an expert to set them up can relieve you and your loved ones' stress. If you need help, contact the local chapter of the American Bar Association. The American Bar Association can advise a person creating a POA and LegalZoom can.

How to set up power of attorney

The basic requirements for being an attorney-in-fact are to be 18 or older and of sound mind. This person will be responsible for important financial and medical decisions, so choose someone who understands your concerns. They must be trustworthy, and it helps if you can communicate easily with them.

In many cases, spouses give each other power of attorney. When you don't have a spouse, then a parent, adult children, other family members, or very close friends are often selected. You can appoint multiple attorneys-in-fact—two or more—and give them dual power of attorney.

There are both plusses and minuses to having more than one agent. If you choose a single family member, someone else who is important to you may disagree with your single attorney-in-fact's decisions. That can cause anger and even lawsuits. On the other hand, if you select more than one agent, it may take longer for them to agree on a decision. Unless you designate each agent very specific responsibilities, all will have to agree on every decision. If these are vital financial or healthcare decisions, the delay can be a serious problem. For that reason, there are advantages to choosing only one person.

Whether you name one attorney-in-fact or more, be sure to choose one or more successor attorneys-in-fact just in case your preferred person is unavailable or unable to act when called upon.

Weigh your options thoughtfully. Once you have made your decision, keeping these details to yourself and your designated attorneys-in-fact is a good idea. This decision is very personal, and sharing it with more than one person can cause unnecessary arguments and resentment among those who weren't your chosen agent.

Discuss the role with attorney-in-fact candidates

Being assigned the responsibilities of being an attorney-in-fact is not a good fit for everyone. Before you make your final decision, talk to the person or people you are considering and see if they really are able and willing to do the job.

Here are some signs you might be considering the wrong person to be your attorney-in-fact.

• Too busy: Someone who is already overscheduled may not have time to give the job sufficient attention. The tasks involved can be time-consuming. If the person is too busy, your needs and concerns may not get their fullest attention.
• Willing but not able: This job requires paying attention to details. Not everyone is able to do that. Someone who is unhealthy, disorganized, or unable to see a job through may not do a good job of managing your money or paying bills on time.
• Grief-stricken: Sometimes, it is a mistake to give this important job to the person who will be most worried about your well-being. Someone who is overcome with emotion may not be able to make crucial decisions on your behalf.
• Indifferent or uncaring: This is serious business. Don't choose an attorney-in-fact who doesn't care enough to deal with serious issues and is unlikely to notice and take action about poor care or abuse.

Your potential attorneys-in-fact also deserve to know exactly what will be required of them. If the job sounds like something they don't feel able to do, they should be able to say no without feeling guilty or that they are disappointing you.

Talk frankly and ask questions

Here are some things to talk ask your candidates before you make your decision.

• Do you have any questions about what your responsibilities would be?
• Do you think you currently have time in your schedule to fulfill these responsibilities?
• Do you have concerns about taking on any of these duties?
• Do you have any concerns about potentially managing my money and bills and your own simultaneously?
• If something does happen to me, do you think you will be able to focus on the tasks that you need to complete, or will you be overwhelmed by emotion?
• Do you understand the concept of being a fiduciary? A fiduciary must act responsibly, practically, and in a way that is fair to the person whose health care and financial affairs they are managing. Anyone who violates these guidelines and doesn't act in your best interests can face criminal charges or be held liable in a civil lawsuit.
• How would you deal with it if someone close to me questioned your decision?
• Are you comfortable advocating for my wishes, especially with healthcare providers?

If, after having this discussion, your candidate seems unwilling or declines, don't hesitate to move on to your next choice and have the same talk with them.

Choose the right type of power of attorney

Durable power of attorney. A durable power of attorney takes effect immediately after you and your attorney-in-fact sign it. A durable POA provides you with assistance managing your estate, money, and legal and financial affairs—all your own affairs—if you become incapacitated. You can specify in the durable POA document that you would like your agent to have sweeping authority immediately after the durable POA is signed, or you can limit the powers granted by a durable power of attorney until a physician you choose declares you incompetent. That ensures the person making the decision that will trigger the durable power of attorney is someone whose opinion you trust.

Non-durable power of attorney. A non-durable power of attorney only offers legal authority for a limited and specific time period. For example, it can give your real estate professional or someone else the ability to sign closing documents or other approved tasks when you sell property. They will only have this ability for a very limited period of time.

Springing power of attorney. This power of attorney “springs" into action if you are declared physically or mentally incompetent, allowing your attorney or attorneys-in-fact to make legal, financial, and medical decisions on your behalf. A drawback of a springing POA can be the delay between the onset of your condition and the time it can take to get a professional to declare in writing that you are mentally incapacitated or incompetent.

General power of attorney. A general POA allows your agent to make decisions about legal, health, and financial transactions, including opening and closing bank accounts, buying or selling stocks, filing tax returns, buying or renewing insurance policies, and making healthcare decisions. A general power of attorney offers your agent broad power. It is the POA offering an agent broad power—maybe the broadest power of attorney available.

Limited power of attorney. This is similar to a non-durable power of attorney. It gives your agent some specific responsibilities, but generally, there isn't a time limit. For instance, a limited power of attorney gives an agent in another part of the country the right to market and complete the sale of your home without your presence. If you aren't going to be regularly reachable, this can facilitate rapid decision-making and action.

Medical power of attorney. A medical POA is similar to a springing power of attorney. It allows your attorney or attorneys-in-fact to make healthcare decisions for you if you aren't able to. This common legal document is used in emergency situations. The person you select will be required to follow your previously stated medical wishes, including in your healthcare power of attorney or living will.

Financial power of attorney. A financial POA gives someone else the right to manage your financial matters, including investment portfolios, property, or whatever financial assets you need help with when you aren't available to do it yourself.

Military power of attorney. This gives someone like a spouse or family member the right to pay bills, make financial decisions, and take other actions while you are serving your country and can't be contacted, or the technology available to you is weak. This kind of power of attorney can be vital; most servicepeople assign this role to someone. The key is choosing the right person.

How to set up a power of attorney

As soon as you turn 18 and your parents or guardians no longer have the power to make healthcare decisions, you can consider setting up healthcare power of attorney. To get started, here are the basics on how to do that and decide on other power of attorney types.

• Decide what kind of power of attorney you need. This may sound simple, but there are legal subtleties that aren't obvious to someone unfamiliar with this. So get good advice from a reliable source and make sure you understand the distinctions.
• Write your power of attorney or find a POA document that you can use and amend it to meet your needs. Laws are different in every state, so ensure that the legal documents you are using follow your state's laws. Consider turning this part of the job over to your attorney. Yes, you can draft your own power of attorney without the help of a lawyer. But if it is a complex legal document and you are unsure what it should include, getting legal advice is a smart move.
• Select candidates to be your attorney- or attorneys-in-fact. Talk to them. Make sure they understand their duties and are willing and able to carry them out. You can also name alternatives.
• Arrange for them to sign the document. In most states, this will involve having witnesses and a notary to validate both your and their signatures.
• File the document correctly. This is another detail that varies by state. In Texas, for instance, powers of attorney must be filed with the court in the county in which you live or hold property. In any case, keep copies of your documents in a safe place. If you put a copy in your home safe or a safety deposit box, keep one someplace accessible, like a filing cabinet in your home or office. Give a copy to your attorney-in-fact. Your doctor should also have a copy of your healthcare power of attorney. If you are having a procedure such as surgery, take a copy of your healthcare POA with you and share it when you first check in to the facility.
• Getting married, divorcing, moving to a different area, or taking a different job that requires travel or could be dangerous are all reasons to review your powers of attorney. In other words, if the people and situations in your life change, so should your powers of attorney. Yes, you can revoke power of attorney at any time as long as you are of sound mind. If you change states, your new state will probably acknowledge your current power of attorney, but you should quickly update it to follow the laws of your current state.

Military powers of attorney are unique

Military powers of attorney give spouses and loved ones the ability to handle many details of daily living that service people who are deployed outside of the 50 states can face. Here are some examples:

• A servicemember is deployed, and a spouse or partner needs to register a newborn in the Defense Enrollment Eligibility Reporting System (DEERS). This is a database of active-duty and retired service members, family members, and others eligible for TRICARE health services.
• Permission to rent, buy, or refinance a home jointly or just in the service member's name
• Permission to buy or sell a vehicle jointly or solely owned by a service member
• Allow someone to receive or store household goods even though they aren't on the ownership paperwork
• Replace identification for a dependent
• Make travel claims at the finance office

If you are a serviceperson, get a military attorney to help you prepare and sign the appropriate power of attorney. Military legal assistance offices are located on almost every base, ship, and installation. Visit the U.S. Armed Forces Legal Assistance locator to find the office nearest your location.

Disadvantages and liabilities to powers of attorney

Like everything else, giving or having power of attorney has occasional drawbacks.

Here are three reasons you want to think hard about giving someone you don't know well and trust your power of attorney.

• Your lawyer-in-fact can handle things in ways you might not approve. And they potentially can do something that is hurtful to you. For people who accept the job, there are few legal liabilities. A lawyer-in-fact will only be held responsible if you can prove intentional misconduct. If they make an honest mistake, they can't be held legally responsible.

• You are the only person providing oversight of your agent's actions. This limited power has led, in some cases, to elder abuse.
• Because of the potential for abuse, some banks, government offices, and other institutions that deal with financial matters don't accept powers of attorney.

What's good about powers of attorney

Putting power of attorney in the hands of someone you trust can give you peace of mind that your wishes will be carried out even if you aren't in a position to handle your financial and medical matters yourself.

A well-written power of attorney can make your intentions clear, protect your assets, ensure that your loved ones are taken care of, and prevent any allegations of financial mismanagement. If you travel frequently, powers of attorney can provide significant convenience.