POWER OF ATTORNEY
What Is a Power of Attorney?
A power of attorney is an essential part of estate planning.
A power of attorney is a written and properly executed document in which an individual, referred to as the “principal,” legally authorizes another person or entity, referred to as the “attorney-in-fact” or the “agent,” to make certain decisions or take certain actions on the principal’s behalf. The principal determines how much power or authority the agent will have, for how long they will have it, and under what conditions they will have it.
Important Terms of a Power of Attorney
- Scope – The principal determines what decisions and actions the agent is allowed to make and take on their behalf. The power of attorney may be “general” allowing the Agent to make and take a wide variety of decisions and actions, or it may be a “special” or “limited” power of attorney authorizing the agent to make or take only specific decisions or actions.
- Duration – The principal determines when the power of attorney goes into effect and how long it will last. The principal may grant authority to the agent immediately upon signing the document or require certain conditions to occur, such as disability or incapacity of the principal, before the agent is granted the power and authority.
- Type – For most estate planning purposes, powers of attorney generally fall into two main types.
- Durable Power of Attorney – These relate to the principal’s financial decisions and actions. These powers of attorney will continue to be effective even if the principal becomes Incapacitated.
- Health Care Power of Attorney – As the name implies, these relate to the health care decisions which are made on behalf of the principal and also continue to be effective even if the principal becomes Incapacitated.
- There are other powers of attorney which will not be addressed here.
Power of Attorneys are very important legal documents in estate planning that can be used to protect the individual and their assets. Unfortunately, the power of attorney has limitations. It terminates upon the death of the principal, it may not be accepted by certain financial institutions, and it may not be valid in states which have different legal requirements. In addition, the power of attorney may be challenged, and if the named agent dies or is unable or unwilling to serve as the agent, then the power of attorney is of no help. For these reasons, in addition to having a power of attorney, many individuals and families create a trust which allows more flexibility in the use and management of assets.