A power of attorney — or POA — is a legal document that empowers a person of your choosing to make financial, medical and legal decisions on your behalf. In the document, you can spell out the extent of their powers, and there are a few legal guidelines around what POAs can and can’t do.
What's in this guide?
How does power of attorney work?
There are two parties involved in a power of attorney: you’re the principal, and the person you’re designating is the agent or attorney-in-fact.
You can name anyone as your agent, as long as they’re at least 18 years old. When you create a POA, you’re giving the agent “fiduciary duty” — which is permission to communicate and handle certain situations on your behalf. As such, you want to make sure you’re choosing someone you trust to carry out your wishes.
There are different types of POAs. Generally, you can use a POA to make medical and financial decisions, and for both one-time transactions and ongoing matters.
When is power of attorney used?
Several situations may come up where a power of attorney can be extremely useful, including:
- Closing important business deals. As a business owner, you may be offered a very lucrative business deal that needs to be signed at a specific location and on a specific date. Having a person to act as your agent allows documents to be legally signed on your behalf without your presence.
- Financial management for the elderly. Finances can become more difficult — or tedious — with age. Making a trusted person your agent can help ease the burden. And because guidelines can be written in, absolute control doesn’t have to be given up.
- Making critical medical decisions. A serious accident or medical condition can render you unable to make vital medical decisions. Providing your wishes to a trusted person and making them your agent is a way to maintain control over what happens, even when you’re unconscious.
Many other situations may merit a power of attorney. It can be used to close property deals on your behalf, appear for important court matters, sign and release paychecks in your absence or for any other named purpose the power of attorney was created for.
Who can I choose as an agent?
Your agent is any trusted person you’ve chosen to act as attorney-in-fact on your behalf. You can also have more than one agent. Often, a trusted relative, business associate or friend is chosen to act as an agent for important health, business and financial matters. You may also opt for an actual lawyer or accountant to act as your agent.
Different states have different laws around power of attorney, but all require the agent to be at least 18 or older. This may go without saying, but the agent must also not be incapacitated.
However, since you’ll be bestowing very important powers on your agent or agents, it’s necessary to keep some vital points in mind when choosing an attorney-in-fact.
- Choose an honest and trustworthy person. Your attorney can be authorized to make important decisions on your behalf and may be allowed to handle your financial matters. It’s vital that you choose a person who won’t take advantage of you.
- Integrity is more important than know-how. Appointing people who will act in your best interest is more important than choosing someone based on how much they know.
What are the types of power of attorney?
Typically, POAs fall into one of two categories: medical power of attorney or financial power of attorney. You can give one agent both of these powers, or assign different powers to different agents.
Medical power of attorney
This allows your agent to make decisions about your health care and medical treatment if you’re incapacitated. It usually comes into play when you need long-term care or end-of-life care, but it can also kick in if you’re undergoing surgery or another risky medical procedure.
While the agent can make their own decisions about your health care, if you want to leave specific instructions, create a living will. This will work hand-in-hand with the POA so that your agent knows exactly how to instruct the doctors.
Financial power of attorney
An agent with financial POA is authorized to make financial transactions on your behalf. These may include buying and selling property, making mortgage payments, filing tax returns and collecting refunds, or paying business expenses and insurance premiums.
You can have a nondurable financial POA for single transactions, or a durable POA, which is ideal for long-term financial management. If you pass away while the durable POA is in effect, your estate will be turned over to the executor of your will. Your executor and agent can be the same person — but they don’t have to be.
The extent of your agent’s power
The responsibilities laid out in your POA can be limited or broad, and you can choose from four types of POA when designating an agent.
The laws around each type vary by state, but these are the basic definitions:
- General. This gives the agent the ability to act on your behalf in almost all matters. It can be ongoing or last for a predetermined amount of time.
- Limited. An agent with limited authority can only represent you in certain matters. The POA clarifies what the agent can and can’t do, and may have an expiration date or other conditions.
- Springing. This type of POA is activated when a certain condition is met, or when the principal signs off on it. Examples of triggers that can “spring” the power of attorney include the principal turning a certain age, or the principal becoming incapacitated.
- Durable. Under a durable POA, your agent has powers of attorney until it’s revoked or you pass away.
How does a POA work with more than one agent?
You can appoint several agents to act on your behalf. Not all of the agents are required to have the same control. For example, one could be able to act on your behalf immediately for financial matters, where another one springs into effect if a medical emergency happens.
When two or more people are appointed agents for the same matters, they must make decisions according to your specifications. The two main options are:
- Joint. Any documents must be signed by all agents in a joint situation.
- Independent. Any of the appointed agents have the authority to sign on your behalf.
Keep in mind that regulations around appointing agents differ by state. If you’re unclear on what is allowed, contact a legal professional for advice.
How to create power of attorney
The laws differ slightly between states, but in general, these are the steps:
- Fill out a form that lists the specific power your agent will have, and when it will expire.
- Sign the POA document, and then get it signed by two witnesses and a notary. Your agent can’t be one of the witnesses.
- If you’ve designated your agent to buy or sell property on your behalf, you’ll need to file the POA with your county clerk. Otherwise, you don’t have to file it anywhere.
- Store the signed and notarized POA in a safe place, and print copies for your agent’s.
Can you revoke power of attorney?
Yes. You can typically revoke POA at any time, Otherwise, it dies with you.
A nondurable power of attorney expires if you become mentally incompetent, but a durable power of attorney stays in effect.
State laws may dictate other situations when a POA can be revoked, so check in with a legal professional if you have any questions.
A power of attorney can be a useful tool now and later in life, depending on your needs. Business, financial and medical documents and decisions that you wouldn’t otherwise be able to sign or make can be easily taken care of — just make sure you appoint someone who’s trustworthy as part of your estate planning.
And if you’re worried about what financial legacy you may leave behind, make sure to read our guide on life insurance.
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