A power of attorney (POA) is a document that authorizes another person to act on your behalf.
You use the document to state what you what that person to do and when to do it. For example, you could give:
- your mother the power to trade stock for you while you’re on a retreat
- your brother to buy a house for you while you’re out of the country, or
- your adult child to take over all of your finances when you can no longer take care of them yourself.
You can even use a power of attorney to name a trusted person to make health care decisions for you if there comes a time when you cannot make those decisions for yourself.
Why Make a Power of Attorney?
For a specific event or time period. Most people will make a power of attorney in preparation for an expected absence or illness. If you anticipate that you won’t be available to take care of important matters, you can use a power of attorney to give someone else the power to take care of them for you.
For ongoing incapacity. You might also make a power of attorney if you’re approaching a time of your life when you will no longer be able to manage your own affairs. Using a power of attorney to put a trusted person in charge of your personal finances could take some pressure off of you and would be a huge help to those who will need to keep your affairs running smoothly. You could also name that person (or a different person) to make health care decisions for you when you can no longer make them for yourself.
Just in case. Finally, some people will make a power of attorney as a “just in case.” Even if you aren’t anticipating a time when you’ll need help, an unexpected accident, illness, or absence could cause havoc to your life if you haven’t given anyone the power to manage your affairs. For this reason, most estate planning attorneys believe that everyone should have a power of attorney, so that someone will be empowered to manage your affairs in case the unexpected happens.
What Powers Can You Authorize?
Powers of attorney can cover a broad range of issues, and the powers you grant are almost entirely up to you. You use a “limited” power of attorney to appoint someone to do specific tasks – like managing a bank account or selling a car. Or, you can use a “general” power of attorney to take over all or most of your financial affairs.
A power of attorney that appoints someone to make medical decisions for you is usually called a “health care” or “medical” power of attorney. Sometimes this type of power of attorney is combined with a “living will” -- which describes the types of medical care you want to receive (or not receive) – into an “advance directive.” These terms vary by state, and all states have specific laws for medical powers of attorney, separate from those that deal with financial powers of attorney.
In most states, you cannot use a power of attorney to give another person the power to
- marry or divorce for you
- vote for you, or
- make a will for you.
The law has traditionally considered these matters too personal to delegate.
Who to Name as Agent or Attorney-In-Fact
The person you name to act on your behalf is called your “agent” or “attorney-in-fact.” (As the person making a power of attorney, you are called the “principal.”) The person you name to act on your behalf does not have to be an attorney. You can name almost any adult who has the mental capacity to act in your best interest.
Practically speaking, you want to name someone you trust completely – ideally, someone who understands and respects your wishes. For this reason, it is better to name a person over a bank or other professional fiduciary, if possible. If you expect your attorney-in-fact to help you for a long time or indefinitely, you might also consider naming someone who lives close to you, so that they can more easily access your records, financial institutions, or health care professionals.
You can use your power of attorney to name more than one person to serve as your agent or attorney-in-fact. For example, you could name your son and your daughter. If you do, you will need to state in the document whether they can make decisions alone, or whether they need to act unison. Also, keep in mind that real struggles could arise if they don’t see eye-to-eye about how to act in your best interest. Naming one person -- with alternates – is a useful way to reduce this kind of conflict.
Effective Date, Termination & “Durable” Powers of Attorney
When a power of attorney becomes effective – and also, when it ends – varies depending on the type of power of a ttoeny.
Limited powers of attorney. A limited power of attorney states the date that the document will take effect and it usually includes a termination date. The language might be something like this:
- This power of attorney takes effect on August 15, 20XX, and shall continue until August 15, 20XX.
Limited powers of attorney usually terminate if you become incapacitated. (They are not “durable,” see below.) But as long as you have capacity, you can terminate your power of attorney anytime, even before the termination date you state in the document.
Durable financial powers of attorney. Most “general” powers of attorney go into effect upon signing and are “durable,” meaning that power of attorney will remain in effect, even if the principal becomes incapacitated. This is the most common type of power of attorney because most people are looking to appoint someone to take over their finances if they become incapacitated.
Springing powers of attorney. A springing power of attorney is a durable power of attorney that “springs” into effect when the principal becomes incapacity. So, instead of going into effect when the document is signed, it goes into effect when the principal can no longer manage his or her affairs. This is appealing to those who worry about putting a general power of attorney into effect while they are still well. While springing powers can reduce the possibility of fraudulent acts by the attorney-in-fact, they can also cause delay and confusion when it comes time for the attorney-in-fact to determine that the principal has become incapacitated. Although they are still used in some situations, many attorneys are moving away from springing powers, with the belief that most people should sign non-springing powers that go immediately into effect. Here is their reasoning: If you truly trust your attorney-in-fact to manage your affairs, you should trust them not to misuse the power of attorney while you still have capacity.
Finally, in most cases, death terminates a power of attorney. One exception to this general rule is that in some states, health care powers of attorney can authorize an agent to manage final arrangements, such as cremation, burial, or body donation.
Making a Power of Attorney
A power of attorney is a simple document that need not be filed with the court. You can write your own power of attorney if you use good, state-specific self-help materials. However, if you have questions or complications, see a local estate planning lawyer for advice. It will be well worth your trouble to get your document done right.
Questions for Your Attorney
- Can I name someone other than my spouse to be my attorney-in-fact?
- Do I need to redo my durable power of attorney if it is more than five years old?
- Can use a power of attorney to allow my daughter to make changes to my living trust?