At some point in our lives, many of us will be called to serve as attorneys-in-fact under a power of attorney (POA). A power of attorney is a legal document that gives someone else the authority to act on your behalf in financial or legal matters. The person who signs a power of attorney is known as the “principal,” and the person who is given authority is known as the “agent” or “attorney-in-fact.” A power of attorney can be used in medical, financial, and business situations.
You may need to give someone power of attorney if you become incapacitated and can't make decisions for yourself. A properly executed power of attorney can help avoid brutal court battles and protect your assets and interests.
Below we will provide some tips on adequately executing a power of attorney document. But first, let's go over the basics.
Three Types of Power of Attorneys
1. Durable Power of Attorney – this POA remains in effect even if you become incapacitated.
2. Springing Power of Attorney – this POA only goes into effect if you become incapacitated.
3. Limited Power of Attorney – as the name suggests, this POA is limited to a specific task or property transaction.
It's essential to understand the difference between these types of power of attorneys because the authority you're giving your attorney-in-fact under each one can vary greatly. For example, with a durable power of attorney, you're giving your attorney-in-fact the ability to manage your financial affairs if you become incapacitated. However, with a springing power of attorney, your attorney-in-fact would only have the authority to manage your finances if you become mentally incapacitated and two doctors certify that you cannot do so yourself.
With a limited power of attorney, you may give someone power of attorney to buy or sell property on your behalf, such as your investment advisor, to enact their investment strategy. Or, you may provide someone with limited power of attorney to file your tax returns while you're out of the country.
How To Properly Use a Power of Attorney
1. Choose your agent or attorney-in-fact carefully
This person will have a lot of responsibility, so you want to choose someone you trust implicitly. This person should also be organized and level-headed to handle any situation while carrying out their duties as your attorney-in-fact and always act in your best interests. Most people choose a family member, but it doesn't have to be.
When choosing an attorney-in-fact, selecting someone who lives close enough to you to handle matters quickly and efficiently if the need arises is crucial. You may also want to consider appointing successor attorneys-in-fact in case your first choice is unable or unwilling to serve.
If you become incapacitated, there's a good chance that your bills will continue to pile up—including credit card bills, utility bills, mortgage payments, etc. To prevent late fees and other penalties from accruing, give your attorney-in-fact access to your accounts so they can continue to pay bills on your behalf.
It's also a good idea to keep a copy of the power of attorney in a safe place where your attorney-in-fact can easily access it if necessary. Family members should also know where these documents are in case something happens.
When naming more than one person to act as an agent simultaneously, be alert to the possibility that all may not be available to act when needed, or they may not agree. It is best to name one as an agent and the other as a backup or successor.
2. Be specific in the powers you're granting
The more specific you are in the powers you're granting to your attorney-in-fact, the less room there is for ambiguity and potential abuse down the road. You can limit your attorney-in-fact's powers by specifying what tasks they're authorized to perform on your behalf and how long they can do so.
You should also provide clear instructions about how you want medical care decisions to be made if you cannot communicate them yourself. This may include specifying which treatments you do or don't want to receive, whether you want life support measures taken, etc. Be as specific as possible, so there's no confusion later.
3. Make sure everything is in writing
The document must meet specific requirements for a power of attorney to be valid. For instance, the document must be in writing and signed by you in front of a notary public. Some states also require that witnesses sign the document. It's essential to check the laws in your state before executing a power of attorney.
All aspects of the power of attorney should be spelled out in writing. Hence, there's no confusion about what your attorney-in-fact is allowed to do on your behalf. Oral agreements are not legally binding, so you must outline everything in writing before signing the document. You can require in your power of attorney that your attorney-in-fact regularly report to another person on the financial transactions they make on your behalf.
4. Keep track of changes
Once you've signed a power of attorney, it's important to keep track of any changes made to it over time. If any changes need to be made, be sure to have them done by a law firm, so they're adequately reflected in the document.
If you move to a different state, you may need to execute a new power of attorney that complies with your new state's laws. You should also revoke an old power of attorney if you no longer want that person to act on your behalf.
5. Revoke or cancel the power of attorney when appropriate
There may come a time when you no longer want or need someone to act on your behalf under a power of attorney. In this case, it's essential to revoke or cancel the document as soon as possible so that your former attorney-in-fact no longer has the legal authority to act on your behalf.
Once you've signed a power of attorney, it typically goes into effect immediately unless you specify otherwise in the document. You can revoke a power of attorney anytime as long as you're still competent. To do so, notify your attorney-in-fact in writing that the document is no longer in effect. Destroy any copies of the original document you have on hand and inform any third parties relying on the power of attorney—such as financial institutions or investment firms—that it has been revoked, so your bank accounts aren't compromised.
Tips for Executing a Power of Attorney
There are different requirements for hospitals if it's a medical situation. The attending physician must certify in writing that you lack the mental capacity to make your own medical decisions before your attorney-in-fact can make decisions on your behalf. In some states, there may also be a waiting period before the attorney-in-fact's authority becomes effective.
If you're signing as attorney-in-fact instead of forging a signature of the incapacitated person, be sure to include language in the document stating that you have this authority. This will help avoid potential fraud allegations.
While a power of attorney can be a helpful tool, it's important to use it carefully and responsibly. If properly executed, a power of attorney can help avoid brutal court battles and protect your assets and interests; however, specific requirements must be met for the document to be valid—so it's essential to understand its purpose and limitations before signing one.
Be sure to choose your attorney-in-fact wisely, grant them only those powers you're comfortable with them having and keep track of any changes made to the document over time. If at any point you no longer want or need someone to act on your behalf under a power of attorney, be sure to revoke or cancel the document right away!
With these things in mind, you'll be well on your way toward using a power of attorney correctly if/when the need arises.
Keep in mind that you can find a lawyer specializing in these documents on the American Bar Association website. These documents are part of a holistic estate plan that should include a living will, health care proxy, durable power of attorney, beneficiary designations, and possibly a living trust. Be sure you have everything you need in place BEFORE you have to use it.