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What Is a Power of Attorney? (Simple Checklist)
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Get StartedWhat Is a Power of Attorney?
A power of attorney is a legal document that lets you choose someone to make decisions for you. Think of it as giving someone permission to act on your behalf when you can't do it yourself.
The person you choose is called your "agent" or "attorney-in-fact." You're called the "principal." Your agent can handle things like paying bills, managing bank accounts, or making medical decisions - depending on what type of power of attorney you create.
Here's a simple example: Let's say you're going into surgery and will be under anesthesia. You can't make medical decisions while you're unconscious. A medical power of attorney would let your spouse or adult child make those decisions for you.
This document is fundamentally different from other estate planning tools. While a living trust manages assets after they're transferred into it, a power of attorney gives someone authority over assets you still personally own.
Why Would You Need a Power of Attorney?
Life is unpredictable. You might become unable to handle your own affairs due to illness, injury, or being out of the country. Without a power of attorney, your family might have to go to court to get permission to help you.
Court proceedings take time and cost money. They're also public, which means your private business becomes part of the public record. A power of attorney prevents all of this hassle.
Even if you're young and healthy, accidents happen. Having a power of attorney in place gives you and your family peace of mind.
Consider this scenario: you're traveling abroad and your bank account gets frozen due to suspicious activity. Without someone authorized to act on your behalf, resolving this issue becomes exponentially more complicated. Your family back home would be powerless to help, even though they might have access to all your account information.
This situation illustrates why power of attorney documents are essential components of comprehensive estate planning.
Types of Power of Attorney
General Power of Attorney
This gives your agent broad powers to handle almost all of your financial and legal matters. They can sign contracts, manage investments, file taxes, and handle real estate transactions.
A general power of attorney usually ends if you become incapacitated. That's actually when you might need it most, which is why many people choose a durable power of attorney instead.
Durable Power of Attorney
This is like a general power of attorney, but it continues even if you become incapacitated. The word "durable" means it lasts through your incapacity.
Most financial powers of attorney are durable. This way, your agent can keep paying your bills and managing your money if you become unable to do so yourself.
The durability feature becomes crucial when considering long-term care situations. If you develop dementia or suffer a stroke, your durable power of attorney ensures someone can continue managing your financial affairs seamlessly.
Limited or Special Power of Attorney
This gives your agent power to handle only specific tasks. Maybe you want someone to sell your house while you're living overseas. Or perhaps you need someone to handle a single business transaction.
Limited powers of attorney often have expiration dates or end when the specific task is completed.
These documents are particularly useful for business owners who need someone to handle specific transactions in their absence. The limited scope protects both the principal and agent by clearly defining boundaries.
Medical Power of Attorney
This lets your agent make healthcare decisions for you when you can't. They can talk to doctors, choose treatments, and make end-of-life decisions based on your wishes.
A medical power of attorney is different from a living will or advance directive. A living will states your preferences. A medical power of attorney gives someone the power to make decisions in situations you didn't anticipate.
Medical agents often face difficult decisions that require interpretation of your values and wishes in new circumstances. That's why choosing someone who truly understands your healthcare philosophy is essential.
Springing Power of Attorney
This only "springs" into action when certain conditions are met. Usually, this happens when you become incapacitated.
Sounds good in theory, but springing powers of attorney can be problematic. Banks and other institutions often want proof that the triggering event has occurred. This can cause delays when quick action is needed.
Choosing the Right Agent
Your agent should be someone you trust completely. They'll have significant power over your affairs, so choose wisely.
Consider these qualities in an agent:
- Trustworthy and honest
- Responsible with money
- Good at making decisions under pressure
- Available when needed
- Understands your values and wishes
- Gets along well with your family
You can name more than one agent. They can work together, or you can name a backup agent in case your first choice can't serve.
Geographic location matters more than you might think. An agent who lives across the country might struggle to handle local matters efficiently, especially in emergency situations where immediate action is required.
What Your Agent Can and Cannot Do
Your agent's powers depend on what you specify in the document. Generally, they can handle financial transactions, pay bills, manage investments, and deal with government agencies.
However, agents cannot:
- Change your will
- Act after your death (that's when your will takes over)
- Make decisions for their own benefit instead of yours
- Delegate their authority to someone else
It's important to understand that your agent becomes a fiduciary once they accept the role. This means they have a legal obligation to act in your best interests, not their own. They must keep detailed records of all transactions and be prepared to account for their actions if questioned by family members or courts.
Simple Power of Attorney Checklist
Use this checklist to determine if you need a power of attorney:
□ Do I have assets or income that need management?
If you own property, have bank accounts, receive benefits, or have investments, someone might need to manage these if you become incapacitated.
□ Do I have people depending on me financially?
If family members rely on you for support, you'll want someone who can continue managing your finances to help them.
□ Could I become temporarily incapacitated?
Think beyond permanent disability. Even a serious illness or major surgery could leave you unable to handle your affairs for weeks or months.
□ Do I travel frequently or live abroad?
If you're often away, having someone who can handle emergencies or time-sensitive matters is crucial.
□ Do I have someone I trust to act as my agent?
If you don't have someone reliable, you might need to reconsider your support network or look into professional fiduciaries.
□ Would court involvement be problematic for my family?
Without a power of attorney, your family might need court permission to help you. This takes time, costs money, and creates stress during difficult times.
Understanding the Legal Requirements
Power of attorney requirements vary by state, but most jurisdictions have similar basic requirements. You must be mentally competent when you sign the document.
Most states require witnesses or notarization, and some require both. The document must clearly identify you, your agent, and the powers you're granting. Vague language can render the document useless when your agent needs to use it.
Some financial institutions have their own power of attorney forms they prefer agents to use. While your general power of attorney should work, having the institution's preferred form can prevent delays and complications.
When Does a Power of Attorney End?
Powers of attorney end in several situations:
- You revoke it
- You die
- The expiration date arrives (if you set one)
- Your agent resigns and no backup is named
- You become incapacitated (only for non-durable powers of attorney)
Upon your death, your executor takes over the responsibilities that your agent previously handled. This is why coordinating your power of attorney with your will is essential for smooth estate administration.
Getting Started
Creating a power of attorney doesn't have to be complicated. Start by deciding what type you need and whom you want as your agent.
Consider consulting with an estate planning attorney, especially if you have complex assets or family situations. They can help ensure your power of attorney works properly when you need it.
Remember, having a power of attorney is about planning for the unexpected. It's one of the most important documents you can have, and it's much better to create one before you need it than to wish you had one when it's too late.
Don't forget that powers of attorney should be reviewed periodically, especially after major life changes like marriage, divorce, or the death of your chosen agent. Regular updates ensure your documents remain current and effective. You should also consider updating your estate plan holistically to maintain consistency across all your planning documents.
