Updated: January 16, 2023
At some point people with a chronic disease or terminal illness may become incapable of making or unwilling to make important decisions about their finances, estate, and/or business and may need a reliable person to take over long-term or permanently. This also can be useful for short-term situations, such as major surgery or a temporary impairment of mental status.
It is advisable to have a power of attorney (POA) even if most of your assets are in a revocable living trust that has named a back-up or successor trustee in case this happens. Anyone 18 years old or older can create a POA.
Financial POA is an important part of estate planning. It is a document that allows you, the principal, to give legal authority to at least one other person, usually a spouse, adult child, or other close relative, to act for you on behalf of your estate. Multiple agents can be chosen, but they must be able to work smoothly together to prevent major conflicts, including scheduling conflicts, that can delay decisions.
This person is typically referred to as your agent or “attorney-in-fact” and can act independently, even without consulting an attorney. Financial POA can either be durable or limited based on the purpose of the particular circumstances.
POA is granted using a legal document that must be notarized and should be presented to any party your agent is dealing with. The power is limited to the actions listed in the document, which may be further limited by state-specific laws. Many states have an official financial power of attorney form to assist with this.
While most parties accept a POA, it is not required by law. To increase the chance of a POA being accepted your attorney-in-fact needs to always bring a certified copy of the POA document with them along with a recognized form of identification and any other corroborating documents, such as a medical provider’s confirmation of disability.
You should regularly review and revise the power of attorney document when circumstances or preferences change, such as moving, changes in your estate that require different actions, a divorce, or death of an agent.
If you do not plan ahead the courts will become involved and you may be unable to manage your estate and have a say in who is chosen as guardians, conservators, or committees to manage your estate.
Power of attorney (POA) is not a single entity but a flexible tool to accommodate a variety of situations. In many cases you may be sharing decision making with your agent, especially if you are only physically unable to perform financial or legal responsibilities.
The terms used for a POA can be confusing since they are called types of POAs. Basically each POA has four characteristics that determine the purpose of the POA and contribute to the name of the POA; duration, area of authority, scope of authority, and when it begins.
AREA OF AUTHORITY
Usually only specific tasks that you designate
When task is done, POA expires. May or may not resume if you become incapacitated again.
To act on your behalf for any indicated tasks, usually financial or estate related, while you are unable to perform them due to health or availability
General, financial, legal, care issues, or health care
Until revoked or your death
To act on your behalf for any indicated tasks if you become unable to for a prolonged period or permanently.
Traditionally Power of Attorney will be in effect until any of the following:
Many of the powers you could give to your agent are regulated by and differ from state to state. If you have assets in different states, make sure that state allows agents to perform those actions.
Remember that, whatever actions you want your agent to do, they must be spelled out in detail in the document. Some may need to be authorized by the state. For example, some states allow your agent to make gifts legally, while in other states the agent needs to have it explicitly authorized in their power of attorney document.
Common powers or actions include any or all of these.
Financial and legal matters
Seeing to the upkeep of your residence.
Making medical decisions. However a separate Healthcare POA or Proxy is better for this. A POA that includes both financial and healthcare provisions will have your personal medical and financial information, however if you would like to use professionals, it would not be appropriate for the broker to have your medical information any more than your medical professionals need to know your financial status.
Actions by the agent need to be signed in a specific way, usually either of:
Actions that can’t be performed include: