By Courtney Hoffman, CFP®, AAMS™
Life is unpredictable. The more prepared you are for unforeseen circumstances, the better.
A Power of Attorney (POA) is a legal document that grants someone you trust the authority to act on your behalf in financial, medical, and legal matters should you become incapacitated.
We’ve answered common questions about powers of attorney to help you understand their significance—and necessity—in estate planning.
What is a Power of Attorney?
A power of attorney is a legal document that allows you (the principal) to legally designate an agent to manage specific aspects of your life should you become unable to do so yourself. The authority you grant can be broad or limited to specific tasks, such as buying or selling property, investing money, paying bills, or making medical decisions. A POA ensures that your wishes for your affairs are carried out if you become seriously injured, ill, or otherwise incapacitated.
What Are the Different Types of Power of Attorney?
There are several types of powers of attorney, which provide varying levels of authority to your agent. Your estate planning attorney can help you determine which POAs align best with your needs and intentions and guide you through creating and managing these documents.
General Power of Attorney: This POA grants broad authority to your agent to act on your behalf in all situations permitted by state law. General POAs typically terminate in the event of your incapacitation.
Durable Power of Attorney: Unlike a general POA, a durable POA remains in effect if you become disabled or incapacitated, ensuring continuity in managing your affairs.
Financial Power of Attorney: This POA gives your agent authority to oversee matters related to your finances, businesses, and property when you cannot.
Medical Power of Attorney: Also known as a medical proxy, a medical POA allows your agent to make healthcare decisions if you cannot communicate your wishes regarding emergency, end-of-life, and other medical treatments.
Limited Power of Attorney: This POA restricts your agent’s authority to specific tasks (such as selling property or filing taxes) or periods of time. For example, if you are traveling out-of-country for six months, you can create a limited POA that expires when you return.
Springing Power of Attorney: As the name implies, a springing POA clearly defines a triggering event or level of incapacitation that must occur before it goes into effect.
Why are Powers of Attorney Important?
A POA serves as a safety net in the event of major accidents, illness, or incapacity. Without a POA, your loved ones may face lengthy and expensive court proceedings to gain the authority to manage your affairs. This process is stressful and may lead to unnecessary conflict between family members. Establishing a POA ensures that a person you trust can take over, act in your best interests, and protect your family’s financial security.
How Do You Choose the Right Agent?
Selecting the right person to act as your agent is crucial due to the significant authority and responsibilities they must take on. Whether it’s your spouse, an adult child, a close friend, or a professional, your agent should be someone whom you trust implicitly, who understands your values, who is capable of handling your finances and other affairs, and who will diligently execute your wishes.
Can You Revoke a POA?
Power of attorney can be terminated by writing a letter that expressly revokes it and delivering it to your agent. Some states require that you have the letter notarized. Unless durable, your POA will automatically end upon your incapacitation or set termination date—and all POAs terminate when you pass. It’s important to review your POA (and other estate planning documents) periodically and inform your attorney of changes in your family’s circumstances or if your agent no longer meets your needs.
When Should You Create a Power of Attorney?
The best time to establish a POA is now, while you are healthy and able to make decisions. Waiting until a crisis arises can complicate the process and limit your options. A POA is not solely for older individuals or those with significant assets; it is a vital tool for anyone who wants to ensure their affairs are managed according to their wishes.
EverPar can work with you and your attorney to incorporate POAs into your estate plan and help protect yourself, your loved ones, and your wealth.
Let’s talk about all of your estate planning needs.
Sources:
https://www.investopedia.com/terms/p/powerofattorney.asp
https://www.freewill.com/learn/5-types-of-power-of-attorney
https://www.americanbar.org/groups/senior_lawyers/resources/voice-of-experience/2010-2022/pick-right-power-attorney-instrument
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