Why you should know the different types of power of attorney
Power of attorney is likely a familiar term that many property owners are aware of. But what many do not know is there are many types of power of attorney for not only property but also non-property-related issues. This makes the POA a powerful document, thus before you sign one, you should be aware of its legal power and how it works. Here we discuss all the different types of powers of attorney and what they are for.
What is Power of Attorney
POA, or power of attorney, is a legal document that gives an ‘agent’ the legal power to make decisions for the ‘principal,’ i.e., the person who made the document. This document is only in effect only while the principal is alive. After death, the principal's will comes into effect for legal decisions.
Additionally, the document must be issued before the principal is legally incapable of making the decision themselves. You can also have multiple agents with a preferred agent and alternates or co-agents.
Usually, a lawyer will help you draft the documents and walk you through the process.
POA differs based on the extent of control of the agent, duration of effect, and beginning of the effect.
Different Types Power of Attorney
General Power of Attorney
General POA is a broad mandate that usually gives the agent the power to make any legal decisions on behalf of the principal including real estate, financial, medical, and business decisions. Some of these include:
- paying bills
- managing banking transactions
- entering contracts
- buying and selling property
- opening financial accounts
- managing personal finances
As this POA grants the agent a lot of power, you should be careful who you choose as an agent and keep it only temporarily if you can’t manage your affairs. Like most POAs, it expires when revoked by the principal, permanent incapacitation, or death and can also be limited by state statutes.
Durable Power of Attorney
A durable power of attorney is effective as soon as you become incapacitated. You would usually issue such a POA if you expect to be unable to handle your affairs in the future as a result of a debilitating illness or dementia. The durable power of attorney continues to make financial, legal decisions on your behalf after you can’t legally make decisions for an indefinite period or as long as deemed by the principal.
Nonetheless, you can still access and control your own accounts, and as long as you are competent, you can still revoke the agent’s rights. It also expires upon your death.
For example, real estate POAs are usually durable, but you should still specify in the document to avoid confusion in court. It is your agent's fiduciary duty to put your interests first. However, there are instances of abuse of power by the POA. In such cases, the principal can take the agent to court to return any funds or assets used and grounds for criminal prosecution. Alternatively, adult protective services can also take action on your behalf.
Additionally, banks can also deny access to an agent if they suspect any case of misused funds or the documents haven’t been resigned recently.
Non-Durable Power of Attorney
Non-durable POA, as the name suggests, grants the agent a set amount of time as specified by the principal. This is usually done for a specific objective like in cases where you want another person to sign your documents or make transactions on your behalf.
Non-durable POA is effective upon signing and expires when:
- The non-durable POA has expired or the transaction has been completed.
- You revoke the agent’s right to act on your behalf.
- The principal becomes legally incapacitated.
The non-durable POA can be seen as a fail-safe to prevent indefinite access to your accounts and take advantage in case you are incapacitated.
Like the non-durable POA, an immediate POA is also effective after signing it. However, unlike non-durable POA, the immediate POA is expected to be used when you’re legally incompetent. Always acting in your best interest is the priority of your agent. They are supposed to act only in case of your incapacitation.
Special or Limited Power of Attorney
For specific or limited power of attorney an agent is allowed to act on the principal’s behalf for only specific purposes. For example, the agent can sell real estate or make cash checks for the principal but they can’t access the house or investment portfolio. You can also appoint different agents for different powers. However, they can’t access your accounts entirely, and it expires when the task is completed or the deadline expires.
Financial POA is a type of limited POA that may be durable or non-durable depending on the principal’s interest where the agent is given access to handle money and property and is allowed but not limited to:
- Make bank deposits and withdrawals
- Sell or rent your real estate
- Pay your bills and your family’s expenses
- Collect and manage your retirement benefits
- File your taxes
This is tailored for situations where you want to limit the power of your agent. As a principal, you should have a detailed discussion about the extent of power the agent can handle before issuing the document. It is best to consult an attorney if you are unsure about the details.
Springing Durable Power of Attorney
A springing POA is effective when a specific event occurs or if specific conditions are met in the future. For example, drafting of the principal overseas if they are in the military, incapacitation, or if the principal is abroad.
Depending on the principal, the POA may be durable or non-durable and can include any tasks assigned by the principal.
Until the specific conditions are met, the agent has no other legal authority, and you still have control over your assets. Therefore, unlike a traditional POA, which is effective after signing, a springing POA activates only after you are incapacitated, preventing the risk of misuse of the POA.
However, attorneys recommend that a springing POA shouldn’t be used in the case of real estate planning because the level of incapacitation can be difficult to determine and a lengthy process. For example, principal suffering from dementia still has a degree of cognitive power, and this can make it difficult to judge whether they are fit to make legal decisions.
Medical Power of Attorney
Medical or healthcare POA is part of a larger document called advanced directive which also includes a near-death directive dealing with severe illness or coma and whether you want a do not resuscitate (DNR) form. Additionally, it also includes an after-death directive that would deal with your death rites and choices regarding organ donation.
Your agent can be the same as your other financial POA, though it is better to have alternates for financial and medical POAs. Similarly, your health and financial POA is better made separately. The health POA allows your agent to make decisions considering:
- medical treatment
- surgical procedures
- artificial hydration and nutrition
- release of medical records
- end-of-life care
- The doctors and hospitals used to administer your care
- organ donation
- choice of health care facilities
This becomes effective after signing the document and consent of the presiding physician to declare you incompetent. It is also ideal to have counsel before selecting an agent and inform the agent about the entire process of notarizing a POA.
How Power of Attorney Works
After getting a POA template, the principal needs to confirm their state of residence and verification before the process can begin.
A family law counsel is the first stop for the principal to start the process with additional financial help from legal service offices.
You may also need to have your signature notarized, as well as the agent’s, depending on the state. Generally, procedures and laws vary in different states. Despite the extent of power given by the POA, there are some powers the principal cannot delegate including contracting a marriage, amending or making a will, or casting a vote.
Type of POA for You
The POA should be issued according to the principal’s interest. If you are unsure, both you and the agent candidate should have legal consultation so that both of you understand the whole process. This can help solve any misunderstandings and queries.
For example, if you suffer from a debilitating or chronic illness that you expect will incapacitate you in the future, you should create a financial POA and a medical POA. If you plan to have multiple agents, it is good to familiarize them with each other as they may need to cooperate in your interest.
What POA Agents Should Know
As the principal, you need to discuss with the agent what powers you will grant them through the POA.
1. What aspects of your finances is the agent responsible for?
2. Do you have legal documents like a will, trust, and a medical POA?
3. Will the agent be a successor trustee (the person who takes control of a trust fund after the initial trustee dies) on any trusts?
4. The type of long-term care you prefer such as a nursing home or an aide for in-home care and if there are enough funds for the duration of the care.
5. Whether the agent should take up their responsibilities only after the incapacitation or before.
6. Will co-agents act independently or do they need to agree on decisions?
7. What to do if a co-agent doesn’t respond promptly about any decisions or documents.
8. Does the POA have any provisions to settle agent disputes?
Given the complexity and tedious process of POA and agent selection, it is best to have these conversations when you are healthy and sound of mind. Careful decisions and cooperation with family members and legal personnel will give you a better understanding of what’s involved and prevent any misuse of assets.