Power of attorney (POA) allows a third party to make decisions on your behalf. Establishing power of attorney is an important step in the estate planning process, but many people aren’t sure what it entails.
We’ll look at what power of attorney is, how it works, and how to establish POA for yourself or on the behalf of a loved one.
What is power of attorney (POA)?
POA is a legal document that enables you (the principal or grantor) to give another person the right to make decisions on your behalf. This third party is known as an agent, attorney-in-fact, or proxy.
For your agent to legally act on your behalf, a power of attorney document must meet two requirements:
- You must create it of your own free will, without pressure or coercion.
- You must create it while you are of sound mind.
Simply put, POA must be established freely by a mentally competent person. That’s why it’s so important to set up power of attorney when you’re healthy. Otherwise, your wishes for your estate, health, and end-of-life care may not be carried out.
What does a power of attorney do?
A POA document gives another person the ability to act for you. Some types of power of attorney allow your agent to make decisions for you while you’re still alive and well. For instance, you may give a money manager the authority to buy or sell investments on your behalf.
Other types of POAs don’t activate until you become incapacitated. In this case, your agent can’t make decisions for you until you’re physically or mentally incapable of making them for yourself.
For example, an elderly person may name their child as their agent. As long as they remain mentally capable, they can continue to make decisions for themselves. But if they become ill, their child will step in to manage their affairs on their behalf — as long as the decisions fall within the POA terms.
Power of attorney typically expires when the principal passes away, but that can change depending on the type of POA you're using and the creator's wishes.
Why is power of attorney important?
Establishing power of attorney allows you to decide who gets to make decisions when you’re unable to. You can select someone you know and trust, then determine exactly how much authority they have.
Power of attorney also helps reduce your loved ones’ mental and emotional stress. Consider an elderly relative who is no longer able to make decisions for themselves. If they have already established power of attorney, their agent can step in to manage their affairs when the time comes.
But without power of attorney, the court may appoint a conservator or guardian to manage the individual’s affairs. The individual and their family have no control over who the court chooses. In addition, there’s no guarantee that the conservator would make decisions that the individual or their loved ones agree with.
Types of power of attorney
Generally speaking, you can tailor your power of attorney terms to suit your needs, preferences, and goals for the end of your life. The POA you establish may vary based on factors like:
- State laws
- How much responsibility you want your agent to have
- When you want their authority to begin or end
In turn, these details may determine the type of POA you need. Let’s take a closer look at the different types of power of attorney and what they entail.
Durable power of attorney
Durable power of attorney is the most permanent and all-encompassing form of POA. Unless otherwise stated, durable power of attorney gives your agent the ability to make decisions about your financial and medical affairs, including:
- Buying or selling real estate
- Managing investment portfolios and bank accounts
- Applying for benefits
- Paying bills
- Filing tax returns
- Making healthcare decisions
Durable POA stays in effect forever, unless the grantor files a form to cancel the document and revoke power of attorney. That said, the document should state that your agent’s authority will remain intact after you become incapacitated, though you may revise or revoke POA as long as you’re alive and mentally capable.
General power of attorney
General power of attorney gives your agent a broad range of powers. Under a general POA, your agent can act on your behalf for a variety of legal and financial matters, ranging from signing checks to accessing bank accounts and filing taxes. Typically, general POA ends after the grantor become incapacitated, unless otherwise stated.
Limited power of attorney
Limited POA allows an agent to act on your behalf in certain circumstances, such as signing a contract.
When you establish a limited POA, you should outline the scope of your agent’s authority. You may also put a time limit on your agent’s power of attorney. For example, if you plan to travel for a month, your agent may only have the authority to sign a specific contract on your behalf during that period. After you return, their power will be revoked.
Springing power of attorney
Springing power of attorney is a POA that activates following a predetermined circumstance, such as hospitalization. It’s important to be very clear when crafting the terms of your springing POA, or else your agent may have trouble determining exactly when the triggering event occurs.
Medical power of attorney
Medical POA is a type of durable, springing power of attorney that applies to healthcare decisions. Also known as healthcare proxy, medical POA allows your agent to make healthcare decisions for you if necessary.
It’s important to remember your agent doesn’t have the authority to make choices for you if you’re conscious and mentally sound. However, if you become incapacitated — for instance, if you enter into a coma — your agent may step in to make decisions for you.
You can customize your medical POA to end following your recovery. You can also establish different POAs for various situations, providing you with more control over your health.
Financial power of attorney
Financial power of attorney (FPOA) allows you to name an agent to manage your finances on your behalf. Unlike an all-encompassing durable power of attorney, FPOA focuses solely on your assets.
When you name your financial agent, they can step in following your incapacitation to:
- Pay bills
- Manage your dependents’ expenses
- Deposit and withdraw money from your bank account
- Manage your retirement accounts
- Maintain your property
Simply put, your FPOA will have the authority to manage your assets in a reasonable, trustworthy way. You can also establish terms and conditions for your FPOA, depending on your preferences.
Dual power of attorney
Dual power of attorney allows two individuals to share authority and become joint agents. Also known as a joint POA, this document allows both agents to manage the grantor’s finances, make medical decisions, and execute documents on behalf of the grantor.
How to get power of attorney in 5 easy steps
The steps to establish power of attorney may vary based on your state and the type of POA you choose. However, the following outlines the basic process.
1. Decide what type of POA to establish
You may want to establish specific types of POA based on your age, health, or wishes for the end of your life. With that in mind, select the best type of POA for your needs.
2. Choose between durable and limited power of attorney
Next, determine if you want to establish durable or limited power of attorney. As mentioned above, limited power of attorney only lasts as long as you’re mentally sound. If you want to give your agent authority to make decisions when you’re unable to, you may choose to establish a durable POA instead.
3. Determine what type of authority you want to give your agent
Consider the responsibilities you want your agent to have. POAs can be broad and general, allowing agents to make a variety of financial, personal, and medical decisions. On the other hand, you can make your POA very limited.
You may also want to discuss potential responsibilities with your agent to ensure they’re comfortable with the role. If you’re not sure where to begin, use the following questions to help guide the process:
- What financial decisions do you want your agent to make on your behalf?
- Do you want your agent to manage your investment and bank accounts?
- How do you want them to pay your bills?
- How do you want your agent to maintain your home or other real estate properties?
- If your agent is also your healthcare proxy, what medical decisions do you want them to make?
- Do you want to undergo trial procedures or expensive medical treatments if needed?
- Do you want them to agree to life support? If so, at what point and for how long?
These and numerous other questions can help you determine how much responsibility your agent should have. You can also speak with an estate planning attorney to ensure you cover all your bases.
4. Complete the POA form
Next, get a copy of the correct POA form from an attorney. You may also be able to access a state-specific POA form online.
Before you fill it out, make sure you understand your state’s requirements. For instance, some states require you to sign a POA form in front of a notary or multiple witnesses.
5. Copy and store power of attorney forms
Finally, make physical and digital copies of your POA forms and keep them somewhere safe. It’s a good idea to give your agent a copy of a notarized POA form in case they need to use it. You may also consider giving copies to your bank, hospital, attorney, and any other interested parties.
Is It possible to obtain Power of Attorney without consent?
There’s no way to grant power of attorney without consent. For example, you can’t get power of attorney for an elderly relative if they are mentally incapacitated and don’t have a valid POA or living will.
Instead, you’ll need to go before a judge and request conservatorship. Conservatorship — a.k.a. adult guardianship — enables you to make financial and medical decisions on the individual’s behalf.
Move forward confidently with a comprehensive power of attorney plan
Establishing power of attorney can help reduce the stress, confusion, and uncertainty of end-of-life decisions. However, it’s important to do it right to ensure your agent has the authority they need to make the decisions you’ve designated.
You may consider consulting with an attorney experienced in estate planning and elder law. An attorney can help you draw up the paperwork, outline responsibilities, and identify gaps in your agent’s authority.
If possible, before you seek out a lawyer and pay their fees, reach out to your human resources representative to determine if your employer offers legal services as a benefit. Also known as legal insurance, legal plans offer access to a network of skilled lawyers in exchange for a low monthly premium. Your benefits administrator can help you learn more about your options and potentially save you money on the estate planning process.