A power of attorney (POA) is a legally binding document that allows you to appoint someone to manage your property, medical, or financial affairs. Although it can be uncomfortable to think about needing it, a POA is an important part of your estate plan.
A POA is typically used in the event that you become unable to manage your own affairs. Each type gives your attorney-in-fact—the person who will make decisions for you—a different level of control. Some POAs take effect immediately after they're signed, and others only kick in after you're incapacitated.
In this article, we'll explore the role of an attorney-in-fact and what authority the POA grants. We'll also cover the different types of POA's and highlight four tips for creating them.
What Does a Power of Attorney Do?
The POA gives the attorney in fact (also known as the agent) the power to make decisions about your affairs. The type of POA you create dictates which affairs you are granting power over.
The decision-making power of an attorney-in-fact takes effect at different times depending on which POA you choose. No matter which type, any POA becomes null and void when the person it represents passes away. A last will and testament or a living trust is used to list instructions for the management of assets and affairs after death.
What Is the Agent of a Power of Attorney Responsible For?
The agent or attorney-in-fact is a fiduciary. That means they are responsible for managing some or all of another person's affairs. The fiduciary must act responsibly and practically and in a way that is fair to the person whose affairs they are managing. Anyone who violates these duties can face criminal charges or can be held liable in a civil lawsuit.
What Are the Limits of a Power of Attorney?
No power of attorney document is legally binding before it's signed and executed according to the laws of your state. This means that no agent can make decisions on your behalf before the POA document goes into effect. You must also be of sound mind when you appoint an agent. You can view more about the creation of a power of attorney in the infographic below.
Any terms that you feel need clarification can be outlined specifically in your POA document. This is why having the help of an attorney can simplify the process of nominating an agent to have power of attorney.
How Do I Make My Choice of a Power of Attorney Legally Binding?
To make your POA legally binding, sign and execute your document according to the laws of your state. This usually involves signing in front of witnesses or having it notarized. Consider giving a copy to your agent or letting your agent know where they can find a copy if needed.
Attorney-In-Fact vs. Power of Attorney: What's the Difference?
An attorney-in-fact is a person you've assigned to manage your affairs through the power of attorney document. This person is an agent acting on your behalf, also called a fiduciary.
An attorney-in-fact does not need to be someone who can practice law. That said, getting the help of a lawyer to help you draft the POA and navigate estate planning can make the process less stressful for you and your loved ones. While it's not necessary to involve a lawyer, you must choose an agent who is:
- At least 18 years old
- Of sound mind
When designating your attorney-in-fact, it's important to find someone whom you know and trust. This person will act on your behalf to make crucial decisions about your well-being, your finances, your assets, or other affairs. Your attorney-in-fact can be anyone you choose, so picking someone who will act in your best interest can bring you added peace of mind.
Types of Power of Attorney and Their Key Differences
Several types of POA exist, and each serves a different purpose. It might be important to you that the same person is responsible for all of your affairs, or you might want the person handling your finances to be different from the person handling your health care decisions. The differences also extend to when you want the POA to take effect. Here are some of the options (and more information on them in the next section):
- Durable/Non-Durable POA
- Springing POA
- General POA
- Limited POA
- Specific POAs:
Each type of POA has its own benefits, so it's important to understand all of your options before making a decision.
What Is a Durable Power of Attorney?
If you're incapacitated because of an illness or a sudden accident, a durable power of attorney document allows your attorney-in-fact to continue acting in your interest. This is simply a POA that has a durability provision to keep the current power of attorney in effect.
You can specify in your POA document whether you would like your agent to have authority once the document is signed or once a doctor declares you incompetent. You can also specify your preference for which doctor should have that authority to ensure they're a medical professional whose opinion you trust.
- Key Takeaway: A durable POA remains effective after you're incapacitated, regardless of whether it went into effect before that event.
Non-Durable Power of Attorney
A non-durable POA ceases to be effective the moment you're declared incapacitated.
What Is a Springing Power of Attorney?
A springing POA activates as soon as you're declared mentally incompetent or physically incapacitated.
A springing POA is different from an immediately effective POA, which, as the title suggests, becomes effective as soon as you sign it.
One major drawback of a springing POA is the clarity around a declaration of physical or mental unfitness. For example, if you're diagnosed with onset dementia and your ability to make sound decisions is thrown into question, it may be difficult to obtain proof that you're medically incompetent.
- Key Takeaway: If you're declared incapacitated or incompetent, this POA kicks in. It is inactive before that time.
What Is General Power of Attorney?
General power of attorney gives broad powers to your attorney-in-fact. These powers can include:
- Handling financial and business transactions
- Buying life insurance
- Settling claims
- Operating business interests
- Making gifts
- Employing professional help
General POA is an effective tool if you will be out of the country and need someone to handle certain matters, or when you are physically or mentally incapable of managing your affairs. A general POA is often included in an estate plan to make sure someone can handle financial matters.
- Key Takeaway: A general power of attorney is an overarching POA that gives attorney-in-fact power relating to financial decisions.
What Is a Limited Power of Attorney?
Also known as a special power of attorney, this POA document limits the agent to a set number of conditions. You can specify exactly what powers an agent may exercise by signing a special power of attorney. You might use this POA if you can't handle certain affairs due to other commitments or health reasons.
Selling property (personal and real), managing real estate, collecting debts, and handling business transactions are some of the common matters specified in a special POA document.
- Key Takeaway: This power of attorney applies only to specific powers listed in the document and is more limited than a general POA.
Other Power of Attorney Types
There are other, more specific types of POA that can expand or restrict an agent's decision-making powers.
The type of POA you need is a personal decision that you may want to bring up when you talk about estate planning with your family. Planning ahead for end-of-life decisions allows you to spend more time focusing on the people and activities that you love.
What Is a Medical Power of Attorney?
A medical power of attorney also called a durable healthcare power of attorney, grants your agent authority to make medical decisions for you. Your agent will have this power if you are unconscious, mentally incompetent, or otherwise unable to make decisions on your own.
While not the same thing as a living will, many states allow you to include your preference about being kept on life support in a medical POA. Some states will allow you to combine parts of the health care POA and living will into an advanced health care directive.
- Key Takeaway: This durable POA allows an attorney-in-fact to make medical decisions for you, and is sometimes combined with a living will.
What Is a Financial Power of Attorney?
This POA gives a fiduciary the ability to conduct your financial matters when you're not present. This can be a non-durable POA that covers situations where you're unable to be present, such as an extended time spent abroad. It can also be a durable financial POA that covers instances when you're incapacitated or mentally incompetent and therefore can't make sound financial decisions for yourself.
- Key Takeaway: This POA grants an attorney-in-fact the power to make financial decisions on your behalf when you're incapacitated or otherwise unable to.
What Is a Military Power of Attorney?
Just as with powers of attorney that apply to civilians, military powers of attorney vary in their coverage, and what authority you grant is entirely up to you. Due to the travel often involved in military roles, having a power of attorney in place for a military spouse can be beneficial for many everyday situations, such as accessing your bank account, registering a car, or filing taxes.
The unpredictability of life during deployment can mean sudden changes in your plans and your ability to make decisions on your own behalf, whether it's through unavailability, injury, or incapacitation. Having a power of attorney in place is a good idea for anyone in the military, but for those who are deployed, it can be critical.
- Key Takeaway: This POA applies to active-duty service members and their families, and has special considerations for military lifestyles.
3 Tips For Creating Power of Attorney
Once you determine which power of attorney you'll need, you'll need to decide who your agent will be. It's important to remember that any attorney-in-fact is responsible for your best interests and must, to the best of their ability, advocate on your behalf. There are a few steps that can simplify the process of delegating a power of attorney.
1. Decide How Many Agents You'll Need
You are able to appoint multiple attorneys-in-fact to represent your interests, and you should decide whether these agents must act jointly or separately in making decisions. Multiple agents might be beneficial if your medical or financial affairs are complex. But having multiple agents can introduce scheduling conflicts to the process and may delay important decisions.
Similarly, only having one agent has limitations. You should appoint a backup agent who can step in if the original agent is suddenly unable to execute their duties.
2. Find Someone You Trust With Your Best Interests
Trust is a key factor when choosing an agent for your power of attorney. Whether the agent is a friend, relative, organization, or attorney, you need someone who will look out for your best interests, respect your wishes, and won't abuse the powers granted to them.
Only grant power of attorney to someone you trust to take the responsibility seriously.
Should you, a friend, or relative suspect wrongdoing on the part of your agent, report the suspected abuse to a law enforcement agency and consult a lawyer.
3. Make Sure You (Or a Third Party) Receive Updates
It's crucial for an agent to keep accurate records of all transactions done on your behalf and to provide you with periodic updates to keep you informed. If you're unable to review these updates yourself, direct your agent to give an account to a third party that you approve of.
Additional Power of Attorney FAQs:
Can I Appoint Multiple Powers of Attorney?
You can appoint multiple agents. You should decide whether these agents must act jointly or separately in making decisions. Multiple agents may ensure more sound decisions, acting as checks and balances against one another. The downside is that multiple agents can disagree and one person's schedule can potentially delay important transactions or signings of legal documents.
If you appoint only one agent, have a backup. Agents can fall ill, be injured, or somehow be unable to serve when the time comes. A successor agent takes over power of attorney duties from the original agent if needed.
Can Anyone Dispute My Power of Attorney?
Yes, your POA can be disputed. Common reasons are that you weren't competent when you signed it, you were unduly influenced by someone else, or you didn't meet the signing requirements under state law.
If your POA doesn't specify requirements for determining mental competency, your agent will still need a written doctor's confirmation of your incompetence in order to do business on your behalf. A court may even be required to decide the competency issue in some circumstances.
Can I Revoke My Power of Attorney?
You can revoke your power of attorney whenever you want, as long as you are mentally competent and follow your state's laws for revocation.
If you recorded your power of attorney at your county recorder's office, you should record the revocation in the same place.
What Does a Power of Attorney Cost?
Power of attorney pricing varies based on where you obtain your document from and who helps you complete it. Lawyers will often charge an hourly rate to draft a power of attorney document. Online services typically charge less than attorneys and offer tiers of pricing depending on how much legal assistance you need. A basic power of attorney is a fairly straightforward document that does not require legal assistance. A notary public will also typically charge a small fee to notarize the document, which is mandatory in several states, for it to take effect.