What Is a Power of Attorney?

A power of attorney is a document that grants the agent legal authority to act on behalf of the principal and imposes a fiduciary duty to act in the principal’s best interests. A financial power of attorney allows the agent to make financial decisions, including bank transactions, paying bills, signing contracts, transferring real estate, and asset management. A healthcare proxy can make medical decisions during incapacity after a medical emergency or in mental decline. Options include a limited power or a general power of attorney. A durable power of attorney remains in effect until revocation.

This area of law can be confusing if you’re starting out. The best course of action is to seek legal advice from an estate planning lawyer before drafting your power of attorney form.

When You Need a Power of Attorney

Every day, estate planning attorney Eric Parker gets a call from someone whose relative can no longer make decisions for themselves.

“Somebody needs to take over to manage their finances,” says Parker, of Stotis & Baird Chartered in Chicago. “They go to the bank, the bank says, ‘We can’t talk to you,’ and then it’s a question of do you have power of attorney or not? If you don’t, at that point in time, it’s too late.”

Power of attorney gives a designated person the ability to make decisions for the person who created the directive. You can designate both medical and financial POA. “If you don’t have someone who can step in and manage your finances or make healthcare decisions, things can go wrong,” Parker says. “And it is also important at the end of life in terms of having the end of life you want.”

There are different kinds of powers of attorney, including the following.

General Power of Attorney

Under a general power of attorney, the agent is granted broad powers over matters involving the principal. Here, the principal authorizes the agent to accomplish any number of tasks, which can include duties such as:

• Making business decisions
• Handling your personal financial decisions
• Purchasing insurance
• Settling legal affairs
• Handling gifts

Limited Power of Attorney

This type of POA allows the attorney-in-fact to act on the principal’s behalf in a limited capacity. This could mean a few different things. First, it could be a time constraint. Suppose that the principal has a medical procedure with a long recovery time. In that case, the principal might create a POA for an attorney-in-fact to handle their bank accounts during their recovery.

A limited POA could also refer to the scope of the attorney-in-fact’s fiduciary duties. For example, the principal may only want this power of attorney for specific accounts or financial matters.

Durable Power of Attorney

A durable POA is a document that allows your attorney-in-fact to act on your behalf or continue acting on your behalf in your incapacity. Durable POAs include a provision in the document laying out the principal’s expectations for the attorney-in-fact if the principal is incapacitated. Here are two common types of durable POAs:

Healthcare Power of Attorney

This medical power of attorney allows the agent to make critical medical decisions for the principal if the principal lacks the mental capacity to make healthcare decisions for themselves.

Young people may not be thinking about their end of life, but health events like a stroke or dementia can make it necessary. As soon as someone turns 18, they should be considering these directives, Lutrey says. “There’s no good time to be without one,” Parker says. “But certainly as you get older, it becomes more imperative.”

The healthcare directive gives the agent power over a range of healthcare decisions, says estate planning attorney David Lutrey, of Lesser Lutrey Pasquesi & Howe in Lake Forest. “The decision-making can relate to things like medical procedures and treatments and so on, but it can also extend to where you live, who can visit you, and whether or not to discontinue life-sustaining treatment,” he says.

The person selected for medical power of attorney does not have to be the same as the agent for financial power of attorney. One person may be in charge of healthcare decisions and another in charge of financial affairs.

Financial Power of Attorney

This type of durable POA works just like a healthcare POA, but for financial matters. This POA lets the agent handle essential matters like paying bills, filing the principal’s taxes, and depositing checks into the principal’s bank accounts.

Who To Choose for Power of Attorney

Most people can act as a power of attorney, except, for example, the person’s doctor. “There are a lot of questions about who’s a good person to choose, and most attorneys will advise their clients about picking somebody that matches their own beliefs about managing either their healthcare or their money,” Parker says.

People should think about what they want for end-of-life care and medical treatment before beginning the process for advance directives, Parker adds. Those are sensitive and difficult decisions. “And then they have to have given some thought to who they want to act as their agents. Do they have people they trust?”

Talk with family members and loved ones ahead of time, especially about healthcare, Parker says. This ensures everyone is aware of your desired wishes. “Later, when the person who’s the agent has to make that decision, it takes a lot of burden off them if everybody knows that’s what mom or dad wanted, as opposed to two or three siblings coming forward and saying, ‘Wait a minute, no, they’d never want that,'” he says.

Updating Your Estate Plan With a New Power of Attorney

“Updating an estate plan to the new statutory form can grant much more power to an agent than was previously allowed, including the power to change a principal’s estate plan,” says Mary Galardi, an estate planning attorney in Atlanta. “So in enacting a new plan, be certain to understand each power given to the agent as one initials the forms,” Galardi says.

Questions for an Estate Planning Attorney

Many estate planning attorneys provide initial free consultations to prospective clients. These meetings are a great resource for both attorney and client. Initial consultations allow the attorney to hear the facts of the case while the client can determine if the attorney meets their needs.

The best way to decide whether an attorney is the right fit is by asking informed questions. Here are some good questions to ask during your initial conversations:

• Are beneficiaries eligible to be attorneys-in-fact?
• How does a doctor gauge incapacitation?
• Do I need a notary public to notarize my POA document?
• What does a fiduciary duty entail?
• Under what circumstances does the power of attorney end?

Finding the Right Attorney For Your Needs

The process of obtaining a power of attorney can vary depending on state law. “There are a few technicalities, like it has to be witnessed, and there are some restrictions on who the witness can be. There are a few boxes that you have to fill in or initial on the form, and sometimes those are hard for people to understand,” says Parker.

It is essential to approach the right type of attorney who can help you through your entire case. Visit the Super Lawyers directory to find a local lawyer who practices estate planning and probate.