Who will act on your behalf if you are unable to? This is a question we should all, at some point in our lives, be asking ourselves. Granting a power of attorney is an important tool that can help protect yourself both personally and financially. There are several different types of powers of attorney that are specifically designed for different purposes.
What is a Power of Attorney?
A power of attorney (POA) is a legal document that allows one person (principal or grantor) to empower another person (attorney-in-fact or agent) to act on his or her behalf. The principal often designates a spouse or a trusted friend or relative with power of attorney, but an agent can also be an organization, such as a law firm or a bank. The principal decides how much responsibility to give the agent and when the agent’s powers begin and end. You can be a principal if you are an adult and of sound mind. You can be an agent if you are an adult and are willing to take on the role as representative.
The following are the main types of powers of attorney:
General Power of Attorney
A general power of attorney gives broad powers to the agent and is typically used to allow your agent to handle your affairs during a period of time when you are unable to do so. A general power of attorney terminates when the principal becomes incapacitated, dies, or revokes the power of attorney. This type of power of attorney is commonly used if you are traveling out of the country or if you are physically or mentally unable to handle your affairs.
The agent can perform almost any act as the principal such as:
- Manage personal finances
- Buy or sell real estate
- File tax returns
- Make gifts
- Enter safety deposit boxes
- Purchase life insurance
Durable Power of Attorney
A durable power of attorney designates an agent to act on the principal’s behalf and includes a durable clause that maintains the power of attorney after the principal becomes incapacitated. This type of power of attorney will remain in effect until your death unless you rescind it while you are not incapacitated. Without a durable power of attorney, if you become incapacitated, no one can represent you unless a court appoints a conservator or guardian.
Special (“Limited”) Power of Attorney
A special power of attorney allows you to appoint an agent to act on your behalf limited to a specific area. This type of power of attorney may be useful to allow a family member to care for your children when you are gone on a trip or give a business partner the right to make financial decisions regarding your company in your absence.
Common special powers of attorney include the ability to:
- Manage real estate
- Manage business interests
- Handle banking transactions
- Sell or buy property
Medical Power of Attorney (Advance Directive)
A medical power of attorney allows you to appoint an agent to make healthcare decisions for you if you are unconscious, mentally incompetent, or unable to do so. This is different from a "living will", which only allows you to dictate your wishes concerning life-sustaining procedures. Having this document does not mean you give up your right to give medical direction to your doctors when you are able to do it yourself, since it only becomes effective when you are incapacitated.
Springing Power of Attorney
A springing power of attorney allows you to appoint an agent to act on your behalf only when a specified event occurs. This type of power of attorney should be carefully drafted to avoid any difficulty in determining exactly when the "springing" event has happened. For example, the triggering event can be specified as the principal’s reaching a certain age, a doctor certifies that the principal has become incapacitated, or if someone in the military is deployed overseas or disabled.
Other Issues to consider when establishing your power of attorney:
- The POA can include the name of one or more people as successor agents or co-agents. A successor agent takes over as the agent if the current agent stops serving or is no longer able to serve. Since an agent is not able to choose a successor, the agent must be specifically stated by the principal. Co-agents serve as the agent simultaneously.
- Having a POA will not enable the agent to vote in political elections on the grantor's behalf.
- The laws governing POA vary by state.
- Having a POA does not permit you to change a principal’s will.
- A POA will not enable you to make decisions on behalf of the principal after their death unless the principal has also named the agent as the executor of their will.
Powers of attorney can be essential safety nets that protect you and your family in the event something happens to you. Having this in place can allow you to feel secure in knowing that you have a powerful tool to delegate your wishes and protect yourself both personally and financially.
Carol Chaudet
(Updated 4/06/18)