What Is a Power Of Attorney?

A power of attorney, or POA, is a legal document that gives someone else the ability to make legal, financial, or medical decisions for you. The powerful document can make your life easier, especially if you have a family member you trust to handle big decisions for you. But committing to this document is a significant decision.

We explore the details of assigning power of attorney to help you navigate the possibilities.

What Does Power Of Attorney Mean?

Power of attorney (POA) is a written authorization that allows the person you designate to legally act on your behalf when you’re not able to act for yourself. Older individuals or deployed service members may gain peace of mind by having a power of attorney set up.

With a power of attorney document, your chosen representative is called the attorney-in-fact or agent. If necessary, the agent is given the ability to make key decisions about your legal, financial, and medical situations. For example, if you no longer have the ability to keep up with your bills, the principal can handle the act of making payments for you.

When Does Power Of Attorney Kick In?

Power of attorney either takes effect immediately upon signing the document or after a specified event takes place. When your POA kicks in depends on what type you have in place and the specifics of your legal agreement.

If you have a power of attorney document in place, your agent might take over decision-making if you are incapacitated. For example, if you are incapacitated due to memory loss or illness, your agent might have the power to make important decisions for you.

Do You Need A POA?

As you get older or if your health is deteriorating, you might worry that you can no longer make sound decisions about how to spend your money, tackle your healthcare needs or make estate planning decisions. This is where a power of attorney arrangement comes in.

If you remain confident that you are making sound decisions, then a POA might not be necessary. Instead, you might choose to name an executor of your estate after you pass away. Or you might create a living trust, which allows you to manage and distribute assets to the appropriate parties both during and after your life.

Types Of Power Of Attorney

If you want to grant power of attorney to someone, there are different types to consider. Below is a look at the different possibilities to consider.

Durable Power Of Attorney

A durable power of attorney remains in effect if you are incapacitated. When you sign a durable power of attorney document, the agent can start handling financial and legal matters for you. Even if you are incapacitated, their ability to handle these issues continues.

In general, this is an effective tool for those who want a plan for medical emergencies or cognitive decline.

Nondurable Power Of Attorney

A nondurable power of attorney document grants decision-making power to your chosen agent. But if you become incapacitated, the agent loses the power to make decisions for you.

While this could be a useful tool for granting permission for someone to manage your investments, it isn’t useful for estate planning. If you want someone to continue making financial or legal decisions after you are incapacitated due to cognitive decline or illness, then a durable power of attorney is a better option.

Medical Power Of Attorney

A medical power of attorney gives an agent the ability to make medical decisions for you. If you are incapacitated, this document allows an agent to handle your medical decisions.

For example, if you are incapacitated due to general anesthesia, are otherwise unconscious, or lose your ability to make decisions due to cognitive decline, your agent can make the necessary decisions for you.

General Power Of Attorney

A general power of attorney assigns broad decision-making powers to your agent. Since the POA is so broad, it’s a lot of power to give up. With that, people generally avoid this document unless they are undergoing a significant medical procedure or are mentally unable to make rational decisions anymore.

It can also be used on a limited basis. For example, you could sign over limited power of attorney for days you plan to be out of the country. This could be necessary if you are running a major business operation or make many legal decisions on a day-to-day basis.

Limited Or Special Power Of Attorney

Under this arrangement, principals give their agents the authority to act on their behalf only in specific cases. For instance, you might be buying a home but you’re not able to attend your mortgage closing. You can grant a limited, or special, power of attorney to your real estate agent or real estate attorney to sign your closing documents on your behalf.

Since this is a limited basis agreement, the agent cannot make unauthorized decisions on your behalf.

How To Assign Power Of Attorney

If you want to assign power of attorney to someone else, use the following steps as a guide.

1. Choose Your Agent

Choosing the right person to wield power of attorney on your behalf is a challenging decision. You want someone you can trust, which is why many people name their spouses or one of their children in their POA agreements.

Trust isn’t the only factor to consider, you also want an agent who has the skills necessary to make important financial and healthcare decisions. For example, you might not give your daughter power of attorney over your finances if you don’t trust her decision-making skills.

And you don’t want to create a rift in your family. Consider whether granting one child power of attorney will cause resentment among those children who were not granted this authority. It’s important to discuss power of attorney with your family members and your attorney before you are declared incompetent. Planning ahead can ease many of the problems you might face as you age.

2. Meet With An Attorney

You’ll need to work with a legal professional to draft a power of attorney document.

As with all legal choices, it’s important to find an attorney that you trust. Consider getting recommendations from family and friends for an attorney they have worked with. Also, you can explore online reviews and confirm the attorney is in good standing with the state bar before moving forward.

In addition to crafting a POA, an attorney might help you make a will.

3. Choose The Type Of POA

Not all powers of attorney are created equally. It’s important to take a close look at your options to decide which type is right for you.

In some cases, multiple POAs might be necessary. For example, you might choose to assign medical power of attorney to your son and general power of attorney to your daughter.

If you aren’t sure which are appropriate, discuss your options with a legal professional. They can offer guidance on which POA might be appropriate for your situation.

4. Name The Specifics

Beyond choosing the type of POA, you’ll need to get clear on the specifics of the document. A big detail is deciding when the POA would take effect. For example, you might decide it only goes into effect during medical procedures or after you’ve experienced cognitive decline.

Your attorney will help you work through the details of each POA document.

5. Fill Out The POA Form

With an idea of the details, your attorney can help you fill out the POA form. This legal document can take some time to draft. But with the help of an attorney, it shouldn’t take long at all.

6. Sign Your POA Form In Front Of Notary

Once the POA form is completed, it’s time to sign the document in front of a notary. In many cases, your attorney will have a notary available in their office. Other places to find a notary include your local bank branch and local notary businesses. In some cities, you may be able to find a notary service that comes to your home.

What Do I Do If I'm Given Power Of Attorney?

If you are given power of attorney, the first thing to do is recognize the significant responsibility that is being placed on your shoulders. Start by keeping a copy of the document in a safe place.

From there, consider talking to your parents about finances. This could give you a better idea of their situation and what they would like you to do in the future. For example, they might intend to pass on specific assets to particular people or prefer to forgo particular medical procedures. You can choose to keep this in mind when the time comes.

Power Of Attorney FAQs

You have questions about power of attorney. We have answers.

What decisions can’t be made through a POA?

A POA doesn’t give the agent power to change your will, act against the best interest of the person, or make decisions after the death of the principal.

Are there risks to being someone’s power of attorney?

If you abuse the power granted to you by a POA, that’s a crime which you could be liable for. To avoid this risk, always act in the best interests of the principal.

Do I need a lawyer to create a power of attorney for myself?

Although you don’t have to hire an attorney to create a power of attorney document, the help of a legal professional can come in handy. If you want help from an attorney, your financial consultant might be able to recommend someone reputable.

How does the agent sign for the principal?

When an agent uses their power of attorney to sign for the principal, you can write signed “as agent for” the principal. For example, if you have a POA for Sally, you could sign your name after writing “as agent for.”

What if I regain my competency?

If you regain competency after assigning power of attorney, the agent can step down from their role. Depending on the type of POA you assign to the agent, you may regain complete control over your affairs. But you also have the option to revoke a POA or make a new one any time if you can prove your competence.

The Bottom Line

Assigning power of attorney to someone you trust can be a smart move to protect your interests in the future. But if you have questions, it’s a good idea to work with a legal professional to make the right moves for your situation.

As you continue to manage your own financial affairs, download the Rocket Money℠ app today to get a better grasp on your goals.