Do I need a power of attorney? If so, when would I need a power of attorney? If I get a power of attorney, what can be done with it? When is it effective? What happens to it when I die?
These questions are fairly common, and I will try to address them as we walk through a discussion of the power of attorney.
Q; What is a Power of Attorney?
A: Simply put, a power of attorney (or POA) is a document in which you appoint another person, called the attorney-in-fact, or agent, to make decisions on your behalf, such as managing financial matters for you or making choices regarding your medical care. There are two types of POA, general and limited. There are several distinctions between a general power of attorney and a limited power of attorney. A limited power of attorney grants authority to the attorney-in-fact for a specific duty (such as selling a specific house), whereas a general power of attorney would grant authority to perform any financial decisions and tasks on your behalf, not just the one specific task. A limited power of attorney may also contain an expiration date, after which point your attorney in fact is no longer authorized to act on your behalf.
Q: Who needs a POA?
A: Everyone who has has reached the age of majority (has turned 18 and is no longer a minor) needs to have a POA. If you are over 18, your parents can no longer legally make decisions for you, so you need to have a document entrusting that task to someone. That person can be a parent if you wish; but they will not have that authority unless you grant it to them.
Q: When are some examples of when a POA is necessary?
A: A POA is necessary whenever you need an agent to be able to make decisions, such as signing documents, making investments, engaging with banks, discussing and approving medical treatments, and more. This can be either because you are incapacitated, or simply that you want a trusted person to whom you can delegate important decisions. Some examples of times when a power of attorney can be useful:
Q: When will my power of attorney take effect?
A: It depends on the type of power of attorney you select. There are two types: springing and durable powers of attorney.
Springing Power of Attorney: this POA takes effect only upon the incapacity of the principal (the person making the POA). The agent is only authorized to act when you are incapacitated, which means that that the agent will have to prove your incapacity before the POA will be honored.
Durable Power of Attorney: this POA is effective immediately upon signing. Your agent will be authorized to act on your behalf as soon as you sign the document. An advantage over the springing POA is that it is easier to exercise on the agent’s side of things, and this is the type I almost always advise. While this is a sizable amount of authority to give right away, your selection of an agent should be based on your trust in the agent’s character and judgment, and if you don’t trust someone to act on your behalf while you are fully competent, how can you trust them to act when you are disadvantaged and incapacitated?
Q: Who should I choose as my attorney in fact?
A: Your attorney in fact should be someone whom you trust, both in integrity and honesty, and in wisdom. This person has a duty to act in your best interest, so make sure to choose someone you trust to be able to discern your best interest and act in such a manner. You also should bear in mind making updates to your power of attorney as situations change. Someone whose wisdom you previously respected, may eventually become less sharp through age or accident. Make sure to update as needed. I recommend reviewing your power of attorney (and estate plan in general) every year to make sure that what is written still reflects your wishes and realities.
Q: Is an attorney in fact the same as the personal representative for my estate?
A: No, they are two different roles. You can select the same person as both your attorney in fact and your personal representative if you wish, and if you believe they would do a good job fulfilling both roles.
Q: What happens to the POA when I die?
A: POAs do not survive the death of the principal, meaning, when you die, the POA is no longer effective. At that point, the personal representative/executor or your estate will step in and take over.
Those are some of the most common questions I hear concerning the power of attorney. Please feel free to let me know any other questions you have, and I would love to answer them!