What is a Power of Attorney (POA)?
A power of attorney (POA) is a legal authorization that empowers an agent or attorney-in-fact to act on behalf of an individual, known as the principal. The agent may be granted broad or limited authority to make decisions regarding the principal’s property, finances, investments, or medical care.
POAs can be either financial or healthcare oriented, with each type providing the attorney-in-fact with general or limited powers.
Key Takeaways
- A power of attorney allows one person to act for another legally.
- The recipient of this authority is referred to as the agent or attorney-in-fact.
- The principal is the person whose decision-making rights are being delegated.
- Authority under a POA can range from broad to limited, covering various aspects such as property, finances, or medical care.
- A durable power of attorney remains effective even if the principal becomes ill or disabled.
The Essentials of a Power of Attorney
A power of attorney binds the agent and the principal through a legal document. It is often used when the principal faces temporary or permanent illness or disability, or cannot sign necessary documents. Both parties must sign the document, which typically requires a third-party witness.
Most POA documents authorize the agent to represent the principal in all property and financial matters as long as the principal retains mental capacity. The agreement terminates if the principal becomes incapable of making their own decisions.
A POA can be revoked if the principal revokes the agreement, dies, or if it is invalidated by a court or the agent becomes unable to perform their responsibilities.
Types of Powers of Attorney
Durable POA: Takes effect upon signing and remains effective if the principal becomes incapacitated.
Springing POA: Comes into effect only if the principal becomes incapacitated.
Healthcare POA (HCPOA): The agent is granted authority to make health-related decisions if the principal cannot do so.
Financial POA: The agent manages the business and financial affairs of the principal when they are unable.
Healthcare Power of Attorney (HCPOA)
A healthcare proxy enables the agent to make critical health-related decisions for the principal. This document becomes effective when the principal is incapacitated and unable to make decisions independently.
Financial Power of Attorney
A financial POA grants the agent authority to handle the principal’s financial affairs, such as signing checks, managing investment accounts, and filing tax returns. The agent must act according to the principal’s granted responsibilities.
General Power POA: This POA authorizes the agent to act on the principal’s behalf in all permissible matters.
Limited POA: This POA grants the agent authority in specific situations or for specific tasks.
Durable POA (DPOA): Remains in control of legal, property, or financial matters even if the principal becomes mentally incapacitated. However, a DPOA does not grant healthcare decision-making powers.
Springing POA: Activated by a specific event or level of incapacitation detailed within the document.
Setting Up a Power of Attorney
To establish a POA, it’s vital to put terms in writing, use proper formatting, delegate powers clearly, specify whether the POA is durable or not, and notarize the document.
Steps:
- Draft the POA document specific to your state’s requirements.
- Clearly outline the delegated powers.
- Choose your agent wisely, ensuring their trustworthiness and capability.
- Designate the POA as durable, if desired.
- Get the document notarized for validity.
- File the POA if required by your state.
Choosing an Agent
Select a trustworthy and capable individual to act as your agent, considering their qualifications and ability to handle the responsibilities delegated. You may assign multiple agents for different tasks.
Options for Agents:
- Trustworthy family members like an adult child or spouse.
- Professional advisors such as lawyers, accountants, or bankers.
- Allowing multiple agents to act jointly or separately in specific roles.
Risks and Precautions
Regularly review and update your POA, especially with significant changes in personal or family circumstances. You can revoke your POA anytime by drafting and delivering a written, and often notarized, revocation letter.
Common Questions
Can a person with power of attorney do anything they please? No. The agent has a legal fiduciary duty to make decisions in the best interest of the principal as outlined in the POA.
Can next of kin override a power of attorney? No. Next of kin do not have the legal authority to override an existing POA.
How can I revoke a power of attorney? A POA can be revoked by a written revocation, a termination date, or automatically if the principal becomes incapacitated and it isn’t a durable POA.
Who can I name as my agent? Any competent adult you trust can be named, including family members, friends, or professionals.
The Bottom Line
Establishing a power of attorney ensures your financial affairs and health directives are managed according to your wishes, even if you lose the ability to manage them yourself. Choose your agent with care to ensure they can faithfully execute their responsibilities on your behalf.
Related Terms: fiduciary duty, estate planning, financial decision-making, healthcare proxy, durable power of attorney.
References
- American Bar Association. “Power of Attorney”.
- Connecticut General Assembly. “2002-R-0094: Power of Attorney-Mental Capacity”.
- American Bar Association. “Pick the Right Power of Attorney Instrument”.
- Ohio Laws & Administrative Rules. “Section 3109.53 | Form of Power of Attorney for Residential Grandparent”.
- Ohio Laws & Administrative Rules. “Section 1337.04 | Recording of Power of Attorney”.
- Legal Services Corporation. “Pro Bono Innovation Fund”.
