Power of Attorney: What It Is, How It Works, and Why It Matters

A power of attorney gives an individual the legally recognised authority to act on behalf of another individual. The person giving out the power of attorney is known as the principal, while the person receiving it is the agent or attorney-in-fact. The agent may be granted broad or limited authority to decide matters related to the principal's legal concerns, finances, or healthcare. A power of attorney is beneficial when the principal is temporarily or permanently unable to act on their own behalf due to illness, disability, or other circumstances.

What Is the Power of Attorney and What Does It Do?

A power of attorney, also known as a POA, is a legal document that allows someone (the agent) to act on behalf of another person (the principal). Since it authorizes someone to act in their stead, a power of attorney is required to be signed by the principal and cannot be signed by someone else on their behalf.

A POA is an important legal document used to manage finances, make legal decisions, handle medical matters, or perform specific tasks when the principal is unavailable or incapacitated. Their unavailability may be due to illness or disability. However, a POA becomes invalid when the principal passes away or formally revokes it.

There are certain circumstances where a power of attorney is very useful. Beyond illnesses and disabilities, a principal can sign a POA if they intend to travel and will not be available to attend to certain legal or financial matters. They may also do so if they are aging or in certain emergencies.

What Is a Durable Power of Attorney?

A durable power of attorney guarantees that the agent will continue to have authority over particular legal, property, or financial affairs that are specified in the agreement, even when the principal becomes physically or mentally unable. Having such an agreement in place helps alleviate uncertainty and confusion when family members need to step in to manage finances or make difficult medical decisions.

Unlike a durable power of attorney, a non-durable POA expires on the date or occasion specified in the POA agreement, or if the principal loses mental capacity. In contrast, a durable power of attorney contains distinctive language that ensures its effectiveness even in the event of the principal's incapacitation.

Durable POAs are used for planning for medical emergencies, cognitive decline later in life, long-term illnesses, dementia, or other circumstances where the principal is no longer able to make choices. Durable POAs are typically found in distinct documents and come in two varieties: one for financial matters and one for healthcare matters. Durable POAs and a last will are included in the majority of estate plans.

A durable power of attorney for healthcare matters is useful when a medical emergency renders a person unconscious or otherwise incapable of making decisions regarding their care. While the agent in a durable POA cannot make choices about the principal's health, such as removing them from life support, they can pay medical expenditures on the principal's behalf. This may also be called a healthcare proxy.

A durable power of attorney for financial matters ensures the agent fulfills the principal's intentions as effectively as possible, within the parameters specified in the agreement. It may be used to sign checks, make withdrawals, as well as deposits, and designate beneficiaries when the principal is incapable of doing so themselves.

Types of Power of Attorney

There are various types of power of attorney that give the agent certain powers.

General Power of Attorney

Under a general power of attorney, the agent may work for the principal in legal and financial matters as permitted by state law. Under such a contract, the agent may be able to manage assets, sell real estate, sign checks, manage the bank accounts, and file all necessary taxes on behalf of the principal. There is no restriction placed on what the agent can do as it concerns the powers that a POA can grant.

Limited or Special Power of Attorney

With a limited or special power of attorney, the agent can act on behalf of the principal only in certain situations. Such POAs may indicate clearly that the agent can solely handle all retirement accounts held by the principal, for example. This kind of POA might be in force for a set amount of time. If it's decided that the principal is going to be abroad for that period of time, the authorization might only be valid for two years.

Medical Power of Attorney

A medical POA gives an agent the authority to decide on medical matters if the principal is incapable of doing so. In the event of an unfavorable medical situation, it details the principal's agreement to provide the agent POA privileges regarding their health. When the principal is no longer able to make decisions about their health, this POA takes effect.

Springing Power of Attorney

A springing power of attorney establishes the circumstances under which a POA might become effective. It specifies the type of incident or degree of total incapacitation that must take place before the POA takes effect. Until the specified event triggers a POA, the power of attorney may stay inactive. A springing power of attorney has to be extremely carefully drafted to prevent any issues in determining exactly when and whether the triggering event has occurred.

Who Can Override a Power of Attorney?

A power of attorney can only be overridden by specific people or entities. These consist of:

• The principal: As long as they are competent, the individual who established the POA may revoke it at any moment.
• A court-appointed conservator: A court may designate a conservator to manage the principal's financial and medical affairs, including rescinding a power of attorney, if the principal is mentally incapable of making choices for themselves.
• A court: If family members or loved ones believe a POA's agent is misusing their power, they may bring the agent before the court.

If there is suspected abuse of the principal, financial mismanagement, a lack of documentation about the use of funds, forceful behavior by the agent, or an agent exceeding their authority, concerned individuals may contest the validity of a POA.

When and Why You Might Need a Power of Attorney

There are several reasons why you might need a power of attorney. These include:

• Managing Affairs During Travel: If you will be gone for an extended period of time, you may want to use a power of attorney (POA) to make sure your affairs are kept in order.
• Serious Illness: A power of attorney could also play an important role during serious illness, ensuring that you are well taken care of during your illness. This can also be useful during medical emergencies.
• Old Age: People may become incapable of handling their finances or health as they age, in which case a POA might come in handy.
• Military Service: As an active-duty military member, it's a good idea to have a power of attorney in your estate plan.

In any case, it is important to plan for unexpected life events. Setting up a POA can ensure that, come what may, your health and finances are in trusted hands.

How To Set Up a Power of Attorney

There is no general power of attorney accepted in all states; however, the process of setting up a POA is similar regardless of the state you live in. You can set up a power of attorney using the following steps:

• Choose a trustworthy agent: You may appoint a spouse, a family member, a close friend, or an attorney as your agent. What is important is that you choose a person you trust completely and who is capable of acting as an agent, since a POA gives your agent considerable powers over your finances and health.
• Define the scope: A POA can be broad or limited, related to healthcare or finances, but every one of the granted powers needs to be specific. This is true even when a POA is granted to the agent by the principal.
• Write and notarize the document: In many states, a power of attorney needs to be fully notarized. Even in states that don't require it, it is better if a notary's signature as well as seal are placed on a POA.
• Register (if needed): In select states, it's essential to file specific types of POAs with certain government offices. This is especially true when working with the Register of Deeds in a vicinity. Always learn the local rules before attempting to make a POA legally binding.

While you may not choose an attorney to be your agent, it is advisable to seek legal advice before setting up a POA. This will ensure that you follow all the requirements and your POA is completely legal.

Agent's Responsibilities and Legal Limits

When a POA is created, the extent of the legal authority it grants is specified. It is the legal fiduciary responsibility of the person who is awarded power of attorney (the agent) to act in the best interests of the person they are representing and to behave in a sincere, responsible, and honest manner. They also have to be accountable to the principal and present a record of their actions as an agent, including financial transactions.

The POA cannot be used by an agent to benefit themselves at the expense of the principal. It is strictly prohibited for the agent to use the principal's assets for their gain or to engage in self-dealing. Once the POA has been revoked, an agent is also prohibited from taking further action on the principal's behalf. There may be legal repercussions for violating any legal prohibitions.

Revoking or Changing a Power of Attorney

As a principal, you may use the following options to revoke a power of attorney:

• Sign a formal document known as a revocation, which must be notarised.
• Use whatever means you may have specified in your POA.
• If the power of attorney is unregistered, you may revoke it by burning, ripping, canceling, or destroying the document. You must be mentally competent to do this.
• If the power of attorney is registered, you may submit the revocation to the same office where the POA was first filed.

You must notify the agent and all other pertinent parties that you have withdrawn your power of attorney. The mail can be used for that.

Risks and Protections

Using a POA is not without its risks. The common risks involve fraud and misuse by the agent put in charge on the principal's behalf. However, there are certain protections that can mitigate such risks. These include involving a lawyer, choosing a reliable agent, informing close family, and requiring that the agent periodically report all actions taken to a trusted third party. Additionally, you may choose two agents and demand that they both agree for significant transactions.

Legal Differences by Jurisdiction

Power of attorney rules vary by state in the US and even by country. There are often subtle differences between jurisdictions on matters such as notarization, witnesses, and registration that you need to be aware of before setting a POA. For example, New York, Texas, Alabama, and Utah require that a POA be notarized. Arizona and Vermont take that further, also requiring a witness, while Washington, Kentucky, and Delaware require notarization and two witnesses.

Conclusion

A power of attorney is a very useful document that allows someone else to act on your behalf when you are unable to, due to diverse reasons such as health issues, old age, military service, or travel. However, it is important that you choose a trustworthy agent and specify what kind of powers they have so as to reduce the risk of fraud and misuse of your funds. It is also important to know the stipulations on POAs in the jurisdiction where you live, and seeking legal help before setting up a POA is advisable.