Power of Attorney is the legal authority to make important decisions for another person. It’s also the name of the document that gives this authority.
Often abbreviated as a “POA”, a power of attorney is used to appoint someone to manage your financial or business affairs when you’re unable to.
To have someone to 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.
Key Takeaways: What Does Power of Attorney Mean?
- A power of attorney is a legal document that lets you appoint someone to manage your financial affairs or your health care when you’re unable to.
- You can use a power of attorney to plan for the future, or manage your day-to-day life when you can’t be present to sign paperwork.
- Power of attorney can give broad or specific powers (think of the difference like managing all your accounts versus cashing individual checks).
- Power of attorney can stop when you become incapacitated and can’t make your own decisions, or continue after (depending on how you want to use it).
1. Power of Attorney (POA): Meaning and Definitions
To explain the meaning of power of attorney in simple terms, let’s start with some important legal definitions.
A power of attorney is an agreement between two people (or parties), called the “principal” and the “agent.” Using this legal document, the principal agrees to grant the agent “power of attorney,” which enables them to make legal decisions on their behalf.
The principal is the person who needs to have decisions made for them. They typically create the power of attorney, and choose which person will represent them. The principal is sometimes called the “grantor.”
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 to an attorney-at-law, or a lawyer).
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 is unconscious (e.g., in a coma after a car accident) or if they have dementia, they are considered incapacitated.
Depending on the purpose of the power of attorney, the agreement either ends when the principal becomes incapacitated, or stays in effect after. It can be either:
- 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 it will be used. Therefore, 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 act 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 power of attorney, a special power of attorney and a limited power of attorney only authorize the agent to handle specific matters. For example, you could use these types of POA to have someone sign a single document when you cannot be there to do it yourself. They can be durable or non-durable.
One type of durable limited power of attorney is known as a springing POA, because it “springs” into effect only in certain circumstances (such as your incapacitation).
Medical Power of Attorney (Health Care)
A medical power of attorney is a durable power of attorney that takes effect 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 in many states is part of an advance directive.
2. What Does Power of Attorney Allow Me 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.
Here are some uses of a power of attorney, and what it allows you do:
- Estate planning: an elderly person may choose an adult child or loved one to make important decisions about their money or health, in order to plan for a time when they cannot make these choices themselves
- Business: an individual may assign multiple POAs to different people, and have them carry out individual tasks required to smoothly run a business
- Travel: an individual may set up a power of attorney to handle their administrative tasks while they’re travelling or working abroad for an extended period of time
- 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:
- 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
- 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 a medical power of attorney may be able to make health care decisions for a principal when they’re incapacitated, but 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. All parties sign and date a power of attorney form, which describes the duration of the power of attorney, and the type of authority granted.
The form can be edited 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 certain date, when the principal dies, or when the specified task is complete
Legal requirements for powers of attorney differ by state. As of 2020, 26 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 important to check the rules 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 the power of attorney is durable, it’s recommended to record it at a courthouse (i.e., put it into the official country records).
How to Sign as Power of Attorney (and Use a POA)
Once the power of attorney is effective, the agent has the power to sign as power of attorneyand make decisions on the principal’s behalf.
To have an agent use a general financial power of attorney, 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:
by [Agent’s name]
Power of attorney
Some third parties may initially refuse a power of attorney in case of forgery. To proceed, the agent may need to sign an affidavit, or have their lawyer get in touch with the third party.
If the principal is incapacitated and the POA is durable, the agent may need to provide additional documents from health care professionals that confirm the principal’s capacity before the agent can use the POA and sign on the principal’s behalf.
Revoking Power of Attorney
A principal can revoke a power of attorney 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),
A durable power of attorney can’t be revoked 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 power of attorney if you suspect an agent of abuse or negligence. To do so, 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 may not act in the principal’s best interest, and instead make financial decisions to benefit themselves
- When given power of attorney for an aging parent, an agent may be irresponsible, or be influenced by family conflict
- When an agent is given very broad power, they may not act as the principal intends, leading to unexpected consequences
- The power of attorney may not be broad enough, and the agent can’t actually help 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 choose 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 common 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 treated unfairly. 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 they haven’t created a power of attorney, a loved one would need to get legal guardianshipto manage their affairs for them.
The difference between power of attorney and guardianship (also known as conservatorship) is that a guardian can only be appointed by a court, so it’s a lengthy and less private process.
If you’re worried about your elderly parents not having a power of attorney, 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 own power of attorney is a good way to broach the subject and reassure them, while planning for your own future.
5. Conclusion: What Does Power of Attorney Mean for Me?
Now you know the essentials of what a power of attorney is, 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, you should only give 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 that’s legally binding in your state.
If you’re not completely confident in your ability to navigate 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.