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What Is a Power of Attorney?
A power of attorney (POA) is a legal document giving one person (the agent or attorney-in-fact) the power to act for another person (the principal). The agent can have broad legal authority or limited authority to make legal decisions about the principal’s property, finances or medical care. The power of attorney is frequently used in the event of a principal’s illness or disability, or when the principal can’t be present to sign necessary legal documents for financial transactions.
A power of attorney can end for a number of reasons, such as when the principal dies, the principal revokes it, a court invalidates it, the principal divorces their spouse, who happens to be the agent, or the agent can no longer carry out the outlined responsibilities.
Conventional POAs lapse when the creator becomes incapacitated, but a “durable POA” remains in force to enable the agent to manage the creator’s affairs, and a “springing POA” comes into effect only if and when the creator of the POA becomes incapacitated. A medical or healthcare POA enables an agent to make medical decisions on behalf of an incapacitated person.
Understanding Power of Attorney
A power of attorney should be considered when planning for long-term care. There are different types of POAs that fall under either a general power of attorney or limited power of attorney.
A general power of attorney acts on behalf of the principal in any and all matters, as allowed by the state. The agent under a general POA agreement may be authorized to take care of issues such as handling bank accounts, signing checks, selling property and assets like stocks, filing taxes, etc.
A limited power of attorney gives the agent the power to act on behalf of the principal in specific matters or events. For example, the limited POA may explicitly state that the agent is only allowed to manage the principal’s retirement accounts. A limited POA may also be limited to a specific period of time (e.g., if the principal will be out of the country for, say, two years).
Most powers of attorney documents allow an agent to represent the principal in all property and financial matters as long as the principal’s mental state of mind is good. If a situation occurs where the principal becomes incapable of making decisions for him or herself, the POA agreement would automatically end. However, someone who wants the POA to remain in effect after the person’s health deteriorates would need to sign a durable power of attorney (DPOA).
How to choose Power of Attorney
Like the property deed for your house or car, a POA grants immense ownership authority and responsibility. It is literally a matter of life and death in the case of a medical POA. And you could find yourself facing financial privation or bankruptcy if you end up with a mishandled or abused durable POA. Therefore, you should choose your agent with the greatest of care to ensure your wishes are carried out to the greatest extent possible.
It is critical to name a person who is both trustworthy and capable to serve as your agent. This person will act with the same legal authority you would have, so any mistakes made by your agent may be very difficult to correct. Even worse, depending on the extent of the powers you grant, there may be dangerous potential for self-dealing. An agent may have access to your bank accounts, the power to make gifts and transfer your funds, and the ability to sell your property.
Your agent can be any competent adult, including a professional such as an attorney, accountant, or banker. But your agent may also be a family member such as a spouse, adult child or another relative. Naming a family member as your agent saves the fees a professional would charge, and may also keep confidential information about your finances and other private matters “in the family.”