Power of Attorney 101

MANY of us will use a Power of Attorney at some point in our lives – either acting for someone else or for ourselves.

But it is important to understand what a Power of Attorney document actually creates legally, for both parties involved, and the fact there are different kinds with different implications.

Put simply, a Power of Attorney document means you can give permission for someone else to make decisions on your behalf regarding the financial, property, or medical issues if you are not in a position to make them for yourself.

Commonly used for elderly or disabled people who need to rely on a family member or friend, a Power of Attorney document can be used in many other situations as well.

However, the different types of Power of Attorney documents available give different levels of control to the person you nominate as your attorney-in-fact and it is important to know the difference if you are creating one.

A General Power of Attorney gives an individual, or an organization, broad powers to act on your behalf in many matters, such as business and financial decisions, running a business, employing people, giving gifts, paying claims, and buying life insurance.

This is an incredibly useful document for someone who may be out of the country for an extended period of time and needs someone to manage their day-to-day affairs when it is not practical to do so, or for someone who may no longer be mentally or physically able to look after their affairs properly. These are often used in creating an estate plan.

A Special Power of Attorney, however, is more limited in its scope and sets out clearly exactly what powers your attorney-in-fact is authorized to use on your behalfs, such as real estate transactions, business matters, or debt collecting. These are mostly used in business relationships.

In a similar manner, a Health Care Power of Attorney is restricted to making medical decisions for you should you be unconscious or in a position where you cannot reasonably decide for yourself. These are often advised to be put into place for anyone facing major surgery for example. This document does not replace a living will, but in many states can include your preferences surrounding being kept on long-term life support.

The final type is called the Durable Power of Attorney, which covers the situation that you become suddenly mentally incompetent while an existing Power of Attorney is already in effect and enables it to stay in force, or you can create one that only comes into force if a doctor certifies you as medically incompetent. This could be a specifically named doctor, or that two licensed physicians agree on your state.

The key issue for anyone considering establishing a Power of Attorney is your full trust in the person you nominate as your attorney-in-fact – someone you will make decisions in your best interests, respect your known wishes, and not abuse the powers you have given them. They also need to be trusted to keep appropriate records and are shielded from legal liability in any decision they make for you unless it was intentional misconduct, not merely making a mistake or bad decision.  The role is usually performed without compensation.

It is possible to have multiple people as your agent, which does provide a check and balance, but also makes decision making more difficult. It can be advisable to have a backup agent nominated should one be unable to fulfill the role. It is also possible to revoke the Power of Attorney at any time by notifying the agent in writing and recovering all copies.