What is a power of attorney & who needs it?

A power of attorney, or POA, is a legal document that gives someone the right to make financial or medical decisions on your behalf

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Derek SilvaSenior Editor & Personal Finance ExpertDerek is a former senior editor and personal finance expert at Policygenius, where he specialized in financial data, taxes, estate planning, and investing. Previously, he was a staff writer at SmartAsset.

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A power of attorney, or POA, is a legal document that gives someone the right to act on your behalf. That person, defined as your agent or attorney-in-fact, takes on the powers listed in the power of attorney document.

Commonly, people give an agent the power to make financial decisions (financial POA) or medical decisions (medical or health care POA). This could cover anything from simple, one-time transactions, like authorizing your friend to buy a car for you while you’re out of town, to major, life-altering decisions, like choosing to stop palliative care when you have a terminal illness.

When you give someone power of attorney, you become the principal. As principal, you can grant just about anyone you want with powers of attorney — you don’t need to name an actual attorney. Your agent has a fiduciary duty, meaning that he or she legally must act in your best interest as well as possible, but you should still choose someone you trust completely. You can also revoke the power of attorney at any time.

A power of attorney that continues even after the principal is incapacitated is called durable power of attorney (DPOA). Since one of the main reasons to get a power of attorney is to ensure your finances stay healthy if you can’t take care of them yourself, the most common power of attorney is a durable power of attorney.

Key takeaways

  • A power of attorney grants someone you name the right to make financial or medical decisions on your behalf.

  • A general POA is revoked if you become incapacitated, while a durable POA still applies if you’re incapacitated.

  • You may need to file your power attorney with your doctor, financial institutions, county clerk, or state tax agency.

  • Creating a simple power of attorney could cost less than $100 if you do it yourself, but it could cost $300 or more if you hire an estate planning lawyer.

Types of power of attorney

There are many types of power of attorney based on what decisions and transactions they allow your agent to make. A power of attorney differs from an executor of estate, since a power of attorney can make decisions on your behalf during your lifetime, whereas an executor will handle your affairs after you die.

A general power of attorney gives someone a wide range of authority, while a special power of attorney grants someone more limited power

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However, there are two main types of power of attorney we’ll discuss: a financial power of attorney and a medical power of attorney (also called a health care power of attorney). The scope of these POAs is as broad or limited as you want, and your agent’s responsibilities are detailed in your power of attorney document. You can always choose to revoke it at any time, and all powers of attorney expire upon your death.

At the same time, either of these two types of POA could be a durable power of attorney (DPOA) or an ordinary (nondurable) power of attorney. An ordinary POA expires if you become incapacitated, while a durable POA will grant your agent power even in situations when you have become incapacitated and cannot make decisions for yourself.

Medical power of attorney

A medical power of attorney allows your attorney-in-fact to make health care decisions on your behalf. A medical POA is typically a durable power of attorney, continuing in force if you’re incapacitated (more on durable powers of attorney later). This document is also called a health care power of attorney.

Medical POAs often cover long-term care and end-of-life decisions, but you may also use one if you’re undergoing a big surgery or risky medical procedure. Make sure to give a copy of your medical power of attorney to your primary doctor. Without the document on record, they may not recognize your agent.

Medical powers of attorney don’t often specify which types of health conditions the attorney-in-fact can make decisions about, but some states do allow a springing power of attorney that executes after a trigger event. In states that don’t allow for springing POA, you can create a power of attorney that is executed when signed, but which only confers its powers to the agent when your doctor declares that you’re mentally incompetent or incapacitated.

Medical powers of attorney also allow an agent to apply for government health care benefits on your behalf, including Medicare, Medicaid, and Social Security disability insurance (SSDI).

Financial power of attorney

A financial power of attorney lets your agent make certain financial decisions and transactions on your behalf. Some common financial decisions your agent can make include:

  • Buying and selling property, including real estate

  • Using the money in your bank accounts and retirement accounts

  • Depositing checks, including wages, Social Security payments, and interest income

  • Making mortgage payments and other types of debt payments

  • Paying insurance premiums, such as for life insurance and homeowners insurance

  • Filing tax returns, paying tax liabilities, and collecting tax refunds

  • Paying business expenses

  • Making a gift or grant

  • Accessing a safe deposit box

A financial power of attorney may be durable or nondurable. With a nondurable financial power of attorney, it could even last for just a single transaction, the completion of which causes the POA to expire. A durable financial power of attorney is more common as part of your estate plan, because it still gives your agent authority to handle your finances if you’re sick or just need help with long-term management of your finances.

When you create a financial power of attorney, you will need to file your finalized power of attorney documents with any financial institution where you have money or assets that you may want your agent to handle.

Durable power of attorney

Financial and medical powers can both be created as a durable power of attorney if they grant your agent the ability to carry out their responsibilities even after you’ve become mentally or physically incapacitated.

When creating a durable power of attorney for health care, also consider drafting a living will. A living will (or advance directive) contains specific instructions for your end-of-life care, so it works hand-in-hand with a medical power of attorney, which grants someone the power to make decisions that carry out your instructions.

If you die while a durable power of attorney is in effect, the POA expires and administration of your estate becomes the responsibility of the executor you named in your last will and testament. You can name the same person as your attorney-in-fact and executor, but you can also name different people. In no circumstance can a power of attorney change the terms of your will.

How to get a power of attorney

The exact laws for creating a power of attorney differ from state to state and laws may also differ based on the type of power of attorney you want. In general, you can draft your power of attorney by filling out a form that lists the specific powers your attorney-in-fact will have, when those powers go into effect, and when they expire. You may need to have two witnesses sign your POA with you and you may need to get it notarized, but that depends where you live.

You can create power of attorney documents through some digital services. You can also find sample power of attorney forms online (both general and durable), but make sure that any form you use complies with your state’s laws. For more complicated situations, the best option could be to work with an estate planning attorney.

Especially consider working with an attorney if you need your agent to carry out actions in multiple states. An elder law attorney is also worth considering if you want to create a strong plan for end-of-life care.

You also need to give copies of your POA to relevant parties. Like a last will and testament, executing the terms of your power of attorney is dependent on someone having the document in hand. Financial institutions and your state also won’t recognize your power of attorney unless you’ve filed the necessary forms with them ahead of time.

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For example, your county clerk will need a copy of your POA if you want your agent to buy or sell real estate on your behalf. Your state’s tax department could also need you to fill out a form to state that you’ve granted someone power of attorney. In this case the state may also provide the POA form directly on their website, which you can just print and fill out.

Make sure to store your documents in a safe place, like some of the same places you should store a will.

Cost of a power of attorney

The cost to draft power of attorney documents will depend on multiple factors. Hiring an estate attorney to write a simple POA could cost you a few hundred dollars, but that price will vary based on where you live, your situation, and your individual lawyer’s prices.

A durable power of attorney may cost more than a standard power of attorney. Making a more complex POA, like by naming multiple agents or by naming many conditions when the POA could take effect, could cost you more. Writing multiple POAs, like one for finances and one for health care, will also cost more.

It’s important to consider the rest of your estate plan when you draft your power of attorney forms. For example, a living will and POA work well together. It’s also possible that you’ll want to name the same person as your agent and executor of your will.

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