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What is power of attorney?

What to know about and how to grant power of attorney

by David Chandler, Ph.D. ConsumerAffairs Research Team
power of attorney document

What is power of attorney?

A power of attorney is a legal document used to grant someone else the ability to make legal decisions and sign documents on your behalf. You, the “principal” choose someone to act as your “agent,” also called “attorney in fact,” to perform certain legal duties in your stead. While you don’t necessarily need to enlist the help of legal services to write up a POA, involving a lawyer can give you peace of mind throughout the process.

The most common types of POA involve a principal giving their agent legal power over decisions regarding health and finances, typically in separate documents. As principal, you get to set the parameters and limitations in the power of attorney document. Power of attorney is rendered ineffective if the principal dies or becomes otherwise incapacitated (either through injury or mental illness). The exception to this rule is durable POA which gives the agent legal authority until the principal’s death.

Who can be power of attorney?
You can delegate anyone to be an agent for your power of attorney (POA), because of this, it is an important choice for anyone’s estate plan. However, granting someone power of attorney is not a decision to make lightly. It involves a great deal of trust, and there are subtle differences in types of POA that you should you take into consideration. Understanding exactly what it means to grant someone POA is key before giving someone else control of your finances, medical decisions or any other legal facet of your life.

woman looking at different documents

Types of power of attorney

  • General power of attorney: A general POA is a broad document that gives the attorney in fact legal authority over most of the principal’s legal decisions, like financial and medical decisions.
  • Special or limited power of attorney: Special POA (sometimes called limited POA) grants the attorney in fact legal authority over certain legal decisions. For instance, you can grant financial power of attorney to one person and medical power of attorney to someone else; each requires a separate document and filing. Limited POA is most often used in businesses when the principal will be temporarily absent from their business and unable to monitor their finances and needs to grant legal authority to an aide or partner.
  • Financial power of attorney: Financial POA is a special type of document that grants your attorney in fact legal control of your financial duties such as paying taxes, paying bills, investing in stocks and bonds, purchasing or selling real estate, collecting benefits and managing retirement accounts. If you operate a business, your responsibilities can be given to your attorney in fact.
  • Medical power of attorney: Also called a health care power of attorney or durable power of attorney for health care, a medical power of attorney is a legal document that gives authority to an agent to make medical decisions on your behalf. Your agent will only have this authority when your doctor confirms that you are unable to make your own medical decisions or if you are incapable, like if you’re in a coma.
  • Durable power of attorney: Durable POAs, also called “enduring power of attorney,” remain in effect until the principal’s death. This type of POA is usually part of an estate plan.
  • Non-durable power of attorney: A non-durable power of attorney isn’t able to act on your behalf if you are unable to act because you are disabled or incompetent. People use non-durable attorneys for specific cases, like signing documents and handling your affairs when you are physically absent.
  • Springing power of attorney: A springing POA is a type of durable POA that comes into effect after certain conditions are met. In most cases, these conditions are set when the principal becomes incapacitated. The principal specifies these conditions in the document.
man and woman looking at document

Living will vs. durable power of attorney

Living wills

Your living will contains your wishes specifically in the event that you are no longer of sound mind or body to make medical decisions. A living will covers specific medical events, such as “do not resuscitate” orders in the event of terminal illness or severe brain damage.

Durable power of attorney

This type of POA gives the agent broad control over the principal’s assets until the principal’s death. Basically, it’s power of attorney that stays in effect even after you’re incapacitated and unable to act on your own behalf. It doesn’t specifically apply to your medical wishes, like a living will, but rather to how you want your business and estate handled.

Granting someone durable POA is not a decision to be made lightly. In most cases, durable POA is part of a larger estate plan. If you are thinking of setting a durable POA, make sure you specify the conditions under which POA should take effect, as well as the limitations (if any) of the POA.

Unlike a living will, a durable POA for healthcare invests your agent with the authority to make any sort of medical decision for you, not simply limited to deathbed concerns. Because both a living will and a durable POA can remain in effect at the same time, you may want to prepare both with a lawyer to ensure that the legal language is clear in each document.

man signing document

How to grant power of attorney

The process of granting someone power of attorney is fairly straightforward. To grant someone POA, the principal must first fulfill the following criteria:

  • The principal must be at least 18 years old.
  • The principal must be willing to give power of attorney to a person designated in their document.
  • The principal must be of sound mind. This means that the principal must understand the documents she or he is signing, the powers that are being granted and when the document comes into effect.

If you meet these requirements, the other steps to grant power of attorney are easy:

  1. Choose your attorney in fact: This step can often be the most difficult because it invests a good bit of trust in the person who can act as your legal double. Make sure your agent is dependable and someone who will always have your or your business’ well-being in mind when making legal decisions.
  2. Draft the POA: Some specific requirements for POA vary across states, but the main criteria listed above are always standard. Many people draft their POA with an attorney to make sure these requirements are met. If you do not wish to meet with an attorney, you can fill out a POA form; your state should have a form available online or at your county courthouse.
  3. Decide the specifics of your POA: As you draft your document, explain exactly which powers–medical, financial, etc.–you want to grant to your agent. You also need to designate when the POA will take effect. Your attorney could help you with these decisions.
  4. Go through the proper filing process: A POA must be signed, witnessed, notarized and recorded at the courthouse of your county of residence.

The most difficult tasks are choosing your agent and deciding on the specific parameters and limitations of your POA. A lawyer will be able to help you if you run into any problems.

man and woman looking at documents

Frequently asked power of attorney questions

When should I make a durable POA?
It’s never too soon to start an estate plan. Setting up a durable POA in the event of serious illness or tragic accident is a good contingency plan to make sure your assets are in good hands.

Who relies on my POA?
For a financial POA, you will need to send a copy of the document to your bank, brokerage firm, creditors and to anyone with whom you do business. Some financial institutions, however, require you to fill out their own POA forms and will not accept general POA documentation.

For a medical POA, you will need to give POA documentation to your doctor, your immediate family and any hospital or treatment center that may need to know of your POA.

Can power of attorney be changed?
As long as you are legally of sound mind, most states will allow you to revoke POA. Should you decide to revoke POA, it is important to notify all parties immediately. An agent who is ignorant of a revoked POA can still rely on it.

Can two people have power of attorney?
You can appoint multiple people as co-agents. Depending on your circumstances, it may even be a good idea to designate more than one agent in the event one cannot serve as attorney in fact. Should you decide to appoint more than one agent, you will need to clarify in the POA exactly how they must act together and how any disputes should be resolved in case they arise.

Can my agent be held liable for misconduct?
An attorney in fact is essentially a legal double as far as your POA is concerned. However, you or someone close to you can file a suit against your agent if you think they engaged in willful misconduct or gross negligence with your assets. These legal proceedings are often difficult, which is why you should make sure your attorney in fact is someone you can trust completely.

Can I use a generic POA form?
If your state allows for generic forms, they are fine to use to draft a POA as long as you follow the correct legal procedures. However, granting someone POA often entails very specific issues that may not be covered on a general form. Make sure you know exactly what you want covered in your POA to make sure your assets and interests are covered. A general POA form will often work, but you have to make sure it suits your needs first.

man signing legal document

Do I need a power of attorney?

If you want to have business assets looked after while you’re indisposed or if you are preparing an estate plan, having someone look after your legal interests as your power of attorney is an important consideration. Granting someone power of attorney is not a task to take lightly. It invests in someone a good bit of legal power over your finances, your health or any other aspect of your life you want to designate. Make sure your agent’s duties are outlined clearly in the POA before making any final decisions, and always make sure you legal assets are in the hands of someone you trust.

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by David Chandler, Ph.D. ConsumerAffairs Research Team

David Chandler, Ph.D., writes for the ConsumerAffairs Research team to help consumers make smart purchasing decisions. David is passionate about creating content that is useful and informative, and he devotes several hours to researching companies, industries and articles for each piece of content he writes to help consumers find what they need.