Speaking of preparing for the future, which often implies certain unpredictable incidents in people’s lives, one legal form comes to my mind immediately, and that is the Power of Attorney or POA. This is a very important document, perhaps one of the most significant ones to be signed by you. It does not mean that POAs are needed only in cases of people’s aging or being ill. This document should guarantee that all financial and medical matters will be managed according to one’s wishes even when a person cannot do it himself or herself anymore.
For example, imagine a situation when a person gets involved in some accident and is not able to handle bank accounts or sign any legal papers. Who will pay bills then? Who will make necessary medical decisions? If there is no such POA, other people or, in fact, even a court should intervene and make decisions concerning one’s financial and medical matters on one’s behalf. That is why I believe that having POA is very important. Let us take a closer look at POA.
Power of Attorney Explained
To put it into simple terms, a Power of Attorney is a contract between you, the Principal, and your Agent (also called an Attorney-in-Fact). In this type of document, you provide somebody else the right to represent you and make decisions on your behalf in any situation. The extent of such representation may be very extensive or rather limited, depending on your own will and intention.
The Roles of the Principal and Agent
- Principal: That's you. It is the person issuing this document and providing this power. In order to issue a Power of Attorney, you must be mentally competent at the time you sign the document.
- Agent (Attorney-in-Fact): This is the person who acts on your behalf. An Attorney-in-Fact does not have to be a lawyer. It could be anyone whom you trust, such as your spouse, children, friends, professionals or anybody else who can help you in this regard.
Different Strokes for Different Folks: Various Forms of Power of Attorney
You see, it's not a "one size fits all" kind of thing. There are actually many types of POAs that come in a number of different forms, and knowing the difference can help you choose which one will suit your particular needs best.
1. General Power of Attorney
In this form, your agent will have pretty much full control over all your affairs in finance and business. This includes doing banking transactions, paying bills, making investment decisions, and even selling property, among other actions. It's a very broad form, and tends to be automatically effective at the time of its execution. This type is typically used by people who travel a lot or need help with their finances in general.
2. Limited/Special Power of Attorney
On the other hand, this kind of POA is far more specific. In such a case, the agent is allowed to act for the principal only in specific cases or during a specified period of time. You may appoint someone as your limited POA in order for him/her to sell a particular piece of your real estate while you are out of the country.
3. Durable Power of Attorney
This is where it really gets exciting, and, in my view, extremely important. Durable POA will continue to be valid if you should become incapacitated and unable to make decisions on your own behalf. The vast majority of individuals that I talk to prefer having the durable provision, since it is generally the main reason why you are getting the POA. Without the 'durable' part, regular and special POAs become invalid if you should become incapacitated. You can have a Durable Financial POA and Durable Medical POA.
4. Non-Durable Power of Attorney
As you would expect, the Non-Durable POA will automatically terminate if you become incapacitated. These are usually utilized for one-time transactions in which incapacitation does not appear to be a concern, such as selling a home while you're traveling abroad.
5. Springing Power of Attorney
The Springing POA is effective when a particular event occurs or a “triggering event” happens. In most cases, the triggering event is the incapacitation of the principal. The documents always outline the means of determining the incapacitation, and in most cases, one or several doctors’ signatures are required. As much as possible, I tell individuals that sometimes the proof of the springing could lead to delays in a case of emergency.
6. Healthcare Power of Attorney (Medical Power of Attorney /Advance Directive)
It is independent of the other financial POAs. It allows you to authorize a person to make decisions regarding your health care. These decisions might include treatments, medication, surgery, and end of life issues. I strongly believe that this is a very important one.
Requirements for POA
You cannot just write something down on a napkin and assume you have made out a POA, trust me. There are certain requirements that have to be satisfied for the POA to be enforceable. Normally, these are:
- It should be in writing.
- You as the principal have to be of sound mind while making the POA.
- It should have your notarized signature.
- In most states, there should be witnesses present.
- It should specify the agent and his or her powers.
The laws regarding these requirements vary widely between the states, which is why it is extremely important that your POA satisfy the requirements of your own state.
Weight of Duty: What the Agent Can and Cannot Do
Selecting an agent should not be taken lightly since the agent will carry a great deal of responsibility. The agent will have the duty of managing your property in your best interest. The agent has a fiduciary responsibility to make decisions that are in your best interest; this means that he must manage your property properly and keep good accounting records. He definitely cannot do the following things:
- Make decisions that are not covered in the document.
- Mix his money with yours.
- Put your property to use for his personal benefit unless authorized (e.g., payment for services rendered).
- Amend your will.
As I always say, the agent should be a person that you can fully trust.
POA: When Does It Become Effective, When Does It Expire?
A POA may become effective immediately after signing it, or it may be a 'springing' power that becomes operative at some future point. It is usually desirable for immediate effect to apply to financial POAs, particularly durable ones, just to eliminate any unnecessary time-lag. A POA usually expires in the following ways:
- When the principal dies.
- When the principal revokes it (provided he is competent).
- When the agent resigns or becomes incompetent.
- If the document specifies a date or event which is an expiration date.
- When the court shall declare it void.
Why I Feel That Everyone Should Have a POA
Well, I understand that discussing these issues isn’t really pleasant. No one likes to imagine themselves in such a state where they aren’t capable of handling their affairs anymore. However, getting a POA is a very important step of self-care and caring for your family members as well. This step greatly lightens the load for your loved ones who may find themselves under a lot of stress in such a situation, plus it makes sure that your wishes will be taken into account. It provides you with the ability to have control over your future even when you won’t be able to do that physically.