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A power of attorney, or POA, is a legal document that gives someone the right to act on your behalf. He or she can make medical or financial decisions for you.
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 attorney-in-fact or agent, takes on the powers spelled out in the power of attorney document. Those powers can include performing financial transactions using your resources, making decisions regarding your medical treatment and health care, or both.
You can name anyone you want to be power of attorney, but it should be someone you trust completely. The agent doesn’t need to be a lawyer; he or she doesn’t even need to be related to you. But the agent has fiduciary duty, meaning that he or she needs to be able to communicate your wishes effectively and act on them in your best interest.
When you give someone power of attorney, you become the principal. As principal, you can revoke power of attorney at any time. Power of attorney is also generally revoked after the death of the principal or when a physician determines the principal to be mentally incapacitated. A power of attorney that continues even after the principal is mentally incapacitated is called durable power of attorney (DPOA).
Power of attorney can be used for everything 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 rearrangements, like deciding to stop palliative care when you have a terminal illness.
The laws regarding what a power of attorney can do, and how it can be created, may vary from state to state. That means powers you give someone in one state may not transfer over if that agent needs to do something for you in another state.
Powers of attorney can be extremely limited in scope. They can also be as broad as you want. The attorney-in-fact’s responsibilities are detailed in the power of attorney document, and some power-of-attorney documents even include a checklist of powers, so you can pick and choose according to your needs.
Generally, powers of attorney can be divided up into two categories: medical power of attorney and financial power of attorney. It is also possible to give one person both of these types of power of attorney, or to assign different powers of attorney to different people.
Medical power of attorney allows the attorney-in-fact to make health care decisions on your behalf, typically when you’re incapacitated. This type of power of attorney is often used for long-term care and end-of-life decisions, but it may also be given to someone if you’re undergoing a serious or risky medical procedure.
In some states, you can create a “springing” power of attorney, which executes the power of attorney after a trigger event. In states that don’t allow for springing POA, you can simply create a power of attorney that is executed when signed, but which only confers its powers to the agent when you’re declared mentally incompetent or incapacitated by your doctor.
Medical powers of attorney often don’t specify which types of health conditions the attorney-in-fact can make decisions about. For that reason, medical POA are typically durable powers of attorney: they continue to be in force after you’re longer able to make your own decisions.
Durable power of attorney for health care can be created by a living will, which contains a set of instructions for your end-of-life care, including advance health care directives. In fact, living wills in medical powers of attorney work hand in hand. The attorney-in-fact with medical power of attorney can make his or her own decisions about your health care, but a living will gives specific instructions. That means anything not covered by the directions of the living will can be up to the agent’s discretion.
This type of power of attorney is for making financial transactions on your behalf. Some common financial decisions your agent can make include:
Financial power of attorney is often nondurable, meaning that it expires if you ever lose your ability to personally revoke it. (Power of attorney, whether durable or otherwise, can be revoked at any time, but if you’re mentally incapacitated then it might be impossible for you to do so.) In many cases, financial power of attorney lasts for just a single transaction, the completion of which causes the POA to expire.
There are also durable financial powers of attorney in case you need long-term management of your finances. If you die while a durable power of attorney is in effect, then administration of your estate may become the responsibility of the executor you named in your last will and testament. Your attorney-in-fact can be the same person as your executor, but they can also be different people.
(Read more about the executor's powers.)
However, in no circumstance can a power of attorney change the terms of your will or any trust established by your will. (Agents can change the terms of a living trust if you’re still alive and not mentally incompetent.)
Before you create a financial power of attorney, check with your bank that your power-of-attorney form meets their requirements. Some banks may not find a generic power of attorney to be sufficient and could require you to file a separate power of attorney at a branch.
A will is the best way to ensure your property goes to your loved ones after you die.
The laws for creating power of attorney may be different in every state. In general, you need to fill out a form that lists the specific powers your attorney-in-fact will have, as well as when those powers expire. The agent must be at least 18 years old.
The power-of-attorney document will have to be signed by you as well as two witnesses, neither of which can be designated as the attorney-in-fact. The document will also have to be signed by a notary.
In some states, you may include a living will within the power of attorney.
The power of attorney does not need to be filed anywhere unless the attorney-in-fact will be buying or selling real estate property on your behalf. In that case, you may need to file the power of attorney with your county clerk.
Once the document is signed and notarized, you should store it in a safe place and give copies to the relevant parties. Like a last will and testament, executing the terms of the power of attorney is dependent on having the document on hand.
The power of attorney determines what an agent can do on your behalf. While this could be very broad (“My agent can make any health care decisions he or she deems necessary”), it may also be very limited (“My agent can make a one-time withdrawal from my bank account to pay my mortgage payment”). But a power of attorney can’t do the following:
Power of attorney is also not the same thing as power of appointment, although the same person can have both designations. Power of appointment is where you give a beneficiary of your will the right to disburse of specific property as they see fit. Your attorney-in-fact can be a beneficiary of your will as well as the executor if you wish.
You can revoke power of attorney at any time. Power of attorney is revoked upon your death, or if the document was created while you were deemed incapacitated. Nondurable power of attorney (also called ordinary power of attorney) expires if you become mentally incompetent, but durable power of attorney will stay in effect.
Policygenius’ editorial content is not written by a certified financial planner or advisor. It’s intended for informational purposes only and should not be considered legal, financial, or investment advice. Consult a professional to learn what financial products are right for you.
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