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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.
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.
Several situations may come up where a power of attorney can be extremely useful, including:
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.
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.
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.
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.
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 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:
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:
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.
The laws differ slightly between states, but in general, these are the steps:
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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