A power of attorney (POA) is a legal document in which the principal (you) delegates authority to another person (referred to as the agent or attorney-in-fact) to act on your behalf. The document empowers the agent to make either limited or broad decisions. The term “power of attorney” can also refer to the person who has been designated to act in this capacity.
How a Power of Attorney (POA) Works
Certain circumstances may necessitate the need for someone over the age of 18 to have a power of attorney (POA). Someone in the military, for example, might make a POA before deploying overseas so that another person can act on their behalf if they become incapacitated.
However, incapacity isn’t the only reason someone might require a POA. Expatriate workers and their families must designate a power of attorney for their affairs in America while working abroad. Younger people who travel frequently may establish a POA so that someone can handle their affairs in their absence, particularly if they do not have a spouse to do so. POAs are most commonly used when someone is elderly or is facing a serious, long-term health crisis.
If you have a power of attorney and are unable to act on your own behalf due to mental or physical incapacity, your agent or attorney-in-fact may be called upon to make financial decisions on your behalf to ensure your well-being and care. For example, they may be required to pay bills, sell assets to cover medical expenses, and initiate Medicaid planning on your behalf.
Banking transactions, real estate decisions, dealing with government or retirement benefits, and healthcare billing are all important tasks that a POA can authorize someone to carry out.
How to Get a Power of Attorney (POA)
The first step in obtaining a power of attorney is to choose someone you trust to handle your affairs in your absence. Then you must decide what the agent can and cannot do on your behalf. For example, you could create a POA that only takes effect when you are no longer capable of handling your affairs yourself—or one that takes effect immediately so your agent can act on your behalf while you are away.
Certain powers of attorney are restricted. For example, the POA may simply authorize someone to represent you at a real estate closing in another city. Also, even if a general POA contains no such limiting language, it is usually only effective while the person conveying the power, referred to as “the principal,” has full capacity.
A POA can be set up by anyone. One option is to find a template online that meets the requirements of your state and then follow the instructions provided by your state (it may need to be notarized and require witnesses).
POAs vary depending on when you want the authority to begin and end, how much responsibility you want to delegate to your agent, and the laws in your state. There is no single POA that applies to all states. Different states have different requirements for establishing a power of attorney; for example, Pennsylvania’s statute makes the legal assumption that a power of attorney is durable.
Having an attorney draft the POA will help ensure that it meets state requirements. Because a POA may be called into question if an agent needs to use it with a bank or financial services company, you should inquire about an attorney’s prior experience in drafting such powers. You want someone who is not only familiar with state requirements, but also with the issues that can arise when a power is exercised. This allows the attorney to use language that conveys the full scope of the responsibilities that you want to convey.
To create a legally binding POA, the principal must be of sound mind at the time the document is created. This implies that they must fully comprehend the nature and significance of the document. It also means that if you have a sick parent who is already incapacitated, you will be unable to obtain a power of attorney on their behalf.
The POA can be canceled or revoked at any time by destroying the original document and preparing a new one, or by preparing a formal revocation document informing all parties that the POA is no longer valid.
What Happens If You Lack a Power of Attorney (POA)
POAs are more than just comforting; they may become the instruments that safeguard your financial and real estate interests, your health, and even your manner of death. If you become incapacitated and there is no POA designated to drive, your family will most likely be forced to incur costly and time-consuming delays.
Principals must create POAs for themselves. When a family discovers that an elderly relative is no longer capable of managing their affairs, they cannot “get” a POA. In this case, a court would have to appoint a guardian or conservator, over whom neither the individual nor their family would have any control. Some states require the guardian to post a bond and file a detailed inventory and accounting of the person’s relevant assets. When a POA is not in place, the entire situation becomes more complicated, costly, and public.
Four Types of POAs
There are several types of POAs, as well as various degrees of responsibility that you can delegate.
This begins when you sign it and continues until you are mentally unable to make coherent decisions. It is critical to specify exactly what authority you are delegating to your agent. It could be something very specific, such as granting your attorney the authority to sign a deed of sale for your house while you’re traveling around the world.
This is known as a “limited power of attorney,” and it is fairly common in everyday life. One common application is discretionary money management, which gives money managers the authority to buy and sell investments on behalf of their clients based on their own decisions rather than their clients’. You could also specify a much broader range of powers, such as access to your bank accounts (a “general power of attorney”).
A durable POA takes effect when signed but remains in effect in perpetuity unless you cancel it. Words in the document should state that your agent’s authority should continue even if you become incapacitated. Durable POAs are popular because they allow the agent to manage affairs easily and affordably.
This POA comes into play only when a specific event occurs—your incapacitation, for instance. A springing power of attorney must be very carefully crafted to avoid any problems in identifying precisely when the triggering event has happened.
A medical POA, also known as a durable power of attorney for healthcare decisions or a health care proxy, is both a permanent and a springing power of attorney. The springing aspect means that the POA only takes effect if certain conditions are met. The medical POA will not be activated as long as the principal is conscious and in good health. Some medical power of attorney are written to expire when the principal recovers from the incapacitating condition. You can designate different POAs for various situations and appoint different agents to hold them.
A Will Is Not a POA
Do not expect your will to act in place of a power of attorney. A will directs the distribution of your property after death, whereas a power of attorney governs decisions made during your lifetime.
You can, however, have a living will in addition to a healthcare power of attorney. A living will usually addresses specific issues and wishes related to medical treatment or dying if you have a terminal condition (such as the extent to which lifesaving measures should be used).
A living will does not always deal with other important medical issues, however, such as whether you would decline dialysis or a blood transfusion. These are the kinds of concerns that can be directly articulated in a durable power of attorney for healthcare decisions.
Who Should Be Your Attorney-in-Fact?
The person you choose as your agent must be someone you completely trust. Depending on how your POA is worded, the person you choose will have access to and authority over your health, home, business affairs, personal property, and financial accounts.
It is a good idea to contact each institution with which you do business to ensure that your POA authority is respected. Some banks and financial institutions require you to fill out their own forms.
You may appoint more than one agent and request that they collaborate. However, keep in mind that they may not always agree on what needs to be done. You should also appoint a successor agent in case the original agent is unable to serve in that capacity when the need arises.
The Bottom Line
Choosing someone to hold your power of attorney and specifying that it will operate even if you lose capacity ensures that you have a plan in place for managing your financial and personal affairs if you ever lose capacity.
This gives you more say over how that process is handled if the need arises. Your power of attorney should remain effective if you move to another state; however, the American Bar Association recommends that you use such a move to update your power of attorney. 3 The power expires when you die.