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 immediately 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 broad authority to make health-related decisions when you aren't able to. For instance, you might name your spouse 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.

Key takeaways

• Power of attorney is a legal document that grants an agent authority to make decisions on behalf of the principal.
• Different types and scopes exist, including durable, springing, health care, and financial powers.
• Setting up requires selecting an agent, drafting the document according to state laws, and understanding risks and safeguards associated with it.

Types of power of attorney

There are diverse types of power of attorney, each designed to address different needs and situations. Depending on your requirements, you may opt for:

• Durable power of attorney
• Springing power of attorney
• Health care power of attorney
• Financial power of attorney

Understanding the distinctions between these types is crucial in ensuring that the chosen power of attorney aligns with your preferences and offers the necessary protection.

The following subsections will detail each type of power of attorney, exploring their unique characteristics, scopes, and durations. This information will serve as a valuable resource in helping you make an informed decision when selecting the right power of attorney for your needs.

Durable power of attorney

A durable power of attorney is such a power that remains in effect even if the principal becomes incapacitated, providing continuous decision-making authority to the designated agent. This type of power of attorney is particularly useful in situations where the principal becomes mentally incompetent or physically unable to manage their personal care, property, or finances due to disabilities.

The agent's duties and obligations under a durable power of attorney are vast, including:

• Acting in the principal's best interest
• Overseeing financial affairs
• Making financial decisions
• Paying bills
• Filing tax returns
• Managing investments
• Maintaining accurate records

A durable power of attorney becomes effective upon signing by the principal and remains valid until the principal's death.

Springing power of attorney

A springing power of attorney is a unique type of POA that only takes effect upon the occurrence of a specified event or condition, such as the principal's incapacitation. The principal has the authority to designate the event or condition for activation in a springing power of attorney, which is typically a determination of their inability to act due to mental or physical disability.

To establish a springing power of attorney, the principal must specify the conditions or events that activate the agent's authority. There may be legal considerations to take into account, such as who will declare the principal incapacitated and whether any more than one agent or two doctors are required to declare incapacity.

It is important to note that there can be a delay in the activation of the power of attorney, as the agent must obtain a determination of the principal's incapacity before exercising the granted authority.

Health care power of attorney

A health care power of attorney is a specialized legal document that grants an agent the authority to make medical decisions on behalf of the principal when they are unable to do so. This type of medical POA only becomes operative when the principal is no longer able to make health-related decisions independently.

The agent for a health care power of attorney can be a close relative, friend, or any competent adult whom the principal trusts to make medical decisions on their behalf. It is vital to have an open and honest conversation with the designated agent to ensure they understand the principal's wishes and are willing to make potentially life-altering decisions when the need arises.

Financial power of attorney

A financial power of attorney, also known as a financial POA or general power of attorney POA, is a legal document that grants an individual the authority to manage another person's financial matters. This type of POA is restricted to financial matters and does not extend to healthcare decision-making.

When establishing a financial power of attorney, it is important to consider the specific tasks and responsibilities the agent will have. This may include:

• Managing bank accounts
• Managing investments
• Handling property transactions
• Managing other financial affairs

Having a clear understanding of the agent's role will ensure that the principal's financial interests are protected in the event they become incapacitated or unable to make decisions on their own.

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 or financial transactions 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 medical 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 personal or business affairs 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 too.

Selecting your attorney-in-fact

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.

In addition to selecting a primary agent, it is advisable to designate one or more successor agents in case the primary agent becomes unavailable or unable to fulfill their duties. Having backup agents in place can provide additional peace of mind and ensure that the principal's interests are protected at all times.

Talk frankly and ask questions

Here are some things to 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.

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.

Summary

Throughout this comprehensive guide, we have explored the concept of power of attorney, its various types and functions, and the essential steps to set one up. Understanding and implementing a power of attorney is a crucial step in safeguarding your future and ensuring that your interests are protected in times of need.

As you embark on the journey to establish a power of attorney, remember to select a trustworthy agent, understand the scope and duration of the document, and comply with state-specific laws and regulations. By doing so, you can rest assured that your affairs will be managed according to your wishes, even when you are unable to act on your own.

Frequently asked questions

What are the disadvantages of power of attorney?

A Power of Attorney could leave you vulnerable to abuse and may not grant the intended legal authority. Additionally, it does not cover what happens to assets after death, and there is no direct oversight of the agent's activities, which can lead to elder financial abuse or fraud.

What three decisions cannot be made by a legal power of attorney?

A power of attorney cannot change or invalidate a will, act outside of the principal's best interest, or violate the terms of nominating documents, and cannot make decisions on behalf of the principal after their death.

What is the most recommended type of power of attorney?

For most people, the best option is a general durable power of attorney as it gives your agent broad powers that remain effective even if you become unable to handle your finances. An attorney can further customize this type of durable POA for more specific needs.

What are the liabilities of being a power of attorney?

As an attorney-in-fact, you may be contacted by creditors of the principal for debts owed; however, you are not financially liable. Nevertheless, the creditors do have the right to attempt to collect payment from the principal.

Who is the best person to give power of attorney?

The best person to give power of attorney to is someone you trust, such as a spouse, close family member, or friend. Alternatively, you may also designate your lawyer. Make sure the person is not a minor and is mentally competent.