Establishing a power of attorney is an important part of planning for the future. It’s commonly associated with end-of-life care, but there are a variety of other types of power of attorney with a broad range of applications. Having a power of attorney in place not only provides peace of mind to you and your family, but also prevents costly legal expenses down the road.
What is Power of Attorney?
Power of attorney (or PoA) is a legal document in which you give another person authority to act on your behalf. This person is often referred to as the “agent” or “attorney-in-fact,” and depending on the type of power of attorney drafted, their power may be limited or broad in scope and power. Some types of power of attorney are designed for a singular use, such as having a friend or family member complete a real estate transaction when you are unable to be present in person. Others are made to be general or last forever, such as naming a healthcare power of attorney to make medical decisions on your behalf should you become unable to communicate.
What Are The Different Types of Power of Attorney?
It’s important to remember each power of attorney document is unique and can be personalized to the specific needs of your situation. With that in mind, there are four main types of power of attorney:
- Limited: A limited power of attorney takes effect immediately and stays active until you become unable to make coherent decisions. The document will outline the specific authorities given to the agent. The scope of power can be very limited, such as allowing a money manager to buy and sell investments in your accounts, or it can be more general like granting an agent access to all your bank accounts.
- Durable: A durable power of attorney takes effect immediately and continues even after you may become physically or mentally incapacitated. This power of attorney is valid for the duration of your lifetime, or until you cancel it. A durable power of attorney is the best way to allow loved ones to handle your financial affairs should you become incapacitated.
- Springing: A springing power of attorney does not take place immediately, but rather becomes active when a specific event occurs.
- Medical: A medical power of attorney allows an agent to make decisions on your behalf and is not limited to end-of-life decisions. This agreement is often both durable and springing, meaning it does not take effect until you are incapacitated but remains in effect for the duration of your life. If an accident leaves you unconscious or unable to communicate, a medical power of attorney will allow your agent to quickly make decisions to ensure you receive the best possible care.
Who Should Be Your Agent?
When establishing a power of attorney, the most important choice you will make is deciding who will be your agent. It is crucial to have complete trust in the person you name. Your agent will be entrusted to act in your best interest, sometimes in life-altering ways. Who you choose to be your agent may also depend on the type of power of attorney. For example, a medical power of attorney should be someone with whom you have discussed the type of care you want to receive. On the other hand, when choosing a financial power of attorney you may want to focus on someone without a history of financial missteps. It’s also important to consider the burden that can come with being named someone’s agent. Is this person at a place in their lives where they are able to drop everything on short notice – sometimes for an extended period of time – to make difficult decisions? Do they react well to unexpected or stressful situations? Some people may not be willing to undertake the responsibility, or may undergo unexpected changes in their life which make it more challenging than when they were originally designated for the role. This is why it’s recommended to name successor agents. That way if someone is no longer able to act as your agent, there is an easy transition for another deeply trusted person to take over.
What Happens If I Don’t Have a Power of Attorney?
In the situation where you become physically or mentally incapacitated without a power of attorney in place, there is no longer an avenue to choose who becomes your agent. In this scenario, a court will have to appoint an agent (a court-appointed agent is usually known as a guardian). This process can be costly and time consuming, and often is far more public than anyone wishes. Having power of attorney documents prepared before you need them is the best way to ensure all your affairs are taken care of no matter what life throws your way.