Power of Attorney: Definition, Types, When To Use

What Is a Power of Attorney?

A power of attorney, or POA, is a legal document that lets you appoint a person or organization to manage your medical, property, or financial affairs if you become unable to do so yourself. Different types of POAs will give your attorney-in-fact or agent, the individual you choose to make the decisions for you, different levels of control.

General Power of Attorney

A general power of attorney will give broad powers to the attorney-in-fact (also known as the agent) you appoint. Some powers that a general power of attorney covers include the following:

• Conducting business and financial transactions
• Operating business interests
• Purchasing life insurance
• Making gifts
• Settling claims
• Hiring professional assistance

A general power of attorney is useful if you would like someone to handle some or all of these matters on your behalf. This type of POA often will be included in an estate plan to ensure someone can always handle your financial concerns. Contrast this with a durable power of attorney, which remains in effect even if you become mentally incompetent. A durable power of attorney is typically used in state planning as well.

What Can't My POA DO?

If your power of attorney document does not include specific limitations, it will give your agent broad power over financial or medical decisions. Regardless, the agent is expected to act in the best interest of the principal, the person authorizing the agent to act on his or her behalf. An agent cannot do the following:

• Alter the principal's will, but they may have authority to make changes to the estate plan, such as creating or amending the trust
• Break the fiduciary duty to act in the best interest of the principal
• Continue to make decisions on behalf of the principal after death
• Transfer or change power of attorney to another party

The agent can continue to make decisions following the death of the principal if:

• The principal names the agent as the executor of the will. An executor of a will is the person legally responsible for managing the finances of the deceased.
• The principal dies without a will, and the agent petitions to become the estate's administrator. An estate administrator is the person a court appoints to administer an estate of a deceased person who did not have a will.

An agent does have the right at any time to decline an appointment. An agent cannot, however, choose who will take over the role unless the principal has named an alternate or co-agent in the same POA document, or the principal is still competent to appoint someone else.

When Will the POA End?

A power of attorney document generally becomes null and void in any of the following circumstances:

• The principal revokes the POA.
• The principal specifies an expiration date.
• The principal becomes mentally incompetent.
• The principal dies.

However, a durable power of attorney remains in effect even if the principal becomes mentally incompetent. A principal is considered mentally incompetent in the following circumstances:

• The principal cannot make informed decisions.
• The principal is incapable of communicating his or her decisions.
• The principal has a medical condition from injury or disease, such as unconsciousness or a coma.
• The principal is in a poor state of health that renders the individual mentally incapacitated or disabled.

Durable Power of Attorney

You may choose to sign a durable power of attorney to ensure that you avoid any problems if you become mentally incompetent as a result of an accident or illness while you have a POA in effect. A durable power of attorney is a general, special, or health care power of attorney document that also includes a durability provision that keeps the current POA in effect if you become incapacitated.

You may include provisions stating that the POA cannot go into effect until a physician certifies that you are truly mentally incompetent, even naming the specific doctor you want to make the determination about your competency. You can also require that two licensed physicians must agree on your mental state for the POA to go into effect.

Special or Limited Power of Attorney

You can sign a special or limited power of attorney if you want to detail the exact powers your agent can exercise. A special power of attorney will frequently be used for someone who cannot handle certain affairs because of health reasons or other commitments. A special power of attorney document may specify matters such as the following:

• Managing real estate
• Selling property, including personal and real property
• Handling business transactions
• Collecting debts

Health Care Power of Attorney

You can determine a health care power of attorney if you want to appoint an agent to make medical decisions for you. A health care POA will typically be used if:

• You are unconscious
• You are mentally incompetent
• You are otherwise unable to make medical decisions on your own behalf
• You are conscious, competent, and want to appoint someone to make medical decisions on your behalf

A health care power of attorney is not the same as a living will , a document in which you state your wishes for end-of-life medical care in the event that you become unable to communicate your decisions. Many states will let you include your preference for whether you would like to stay on life support in this POA document. Additionally, some states may allow you to create an advance health care directive that combines a living will and health care power of attorney.

Choosing the Right Power of Attorney

Trust will be the most important factor when you select your agent. Individuals you may appoint as your agent include a relative, friend, attorney, or organization.

You want to make sure you choose someone you know will act in your best interest. You also want to know that your agent will respect your wishes, and you should trust that your agent will not abuse the powers you grant.

An agent should keep accurate records of any transactions made on your behalf and should give you periodic updates. To safeguard yourself further, direct your agent to give these updates and accounts to a third party, such as an attorney, if you are not able to review the updates yourself.

Appointing Multiple POAs

You may appoint multiple agents. If you do so, you will need to determine whether your agents must act separately or jointly when making decisions.

Benefits of appointing more than one agent include the following:

• Multiple agents can ensure more sound decisions by working together
• The agents will act as checks and balances for each other

Disadvantages of appointing more than one agent may be as follows:

• Multiple agents can disagree on decisions
• One agent's other commitments could delay all agents from reaching a decision
• Either scenario can hold up important legal document signatures or transactions

If you decide to appoint only one agent, you should also have a successor. A successor agent will take over POA duties from the first agent if necessary. Examples of occasions a new agent will need to take over can include the original agent falling ill or becoming injured, or otherwise being unable to serve when needed. If you appoint a successor agent, you can be sure the person chosen is someone you also trust.

Does a POA Have Legal Liability?

Legal liability for a power of attorney agent is limited. The agent will only be held responsible in cases of intentional misconduct. An agent will not be legally responsible if he or she does something wrong without knowing it.

POA documents will include these protections to encourage appointed agents to accept the detailed responsibilities. Agents typically perform duties without financial compensation. If you or a loved one suspects that wrongdoing on the part of your agent has occurred, immediately report the abuse you suspect to law enforcement and speak with an attorney.

Consult with an attorney when drafting important documents so that you know you have someone you trust to make important decisions for you in times of need.