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10 Minute Read

What Is a Power of Attorney?

10 Minute Read

A woman holding a power of attorney pamphlet.

Ally McBeal. Atticus Finch. My Cousin Vinnie. These were some of the most powerful attorneys ever to enter a court of law . . . well okay, so they were only fictional lawyers. But they did have something great going for them—their clients’ best interests at heart! And when you give someone power of attorney to handle your affairs, you’re looking for an Atticus type. Not necessarily his law degree, but definitely his trustiness. So, what is a power of attorney?

What Is a Power of Attorney? 

A power of attorney (POA) is a legal doc you use to name an agent (also known as an attorney-in-fact) to make important choices for you when you can’t make them yourself. We’ll talk more about how to pick your agent later, but here it is in a nutshell—when you appoint one, you’re giving them the legal right to handle decisions that you’ve approved them to make. Trust is key.

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Without a trusted power of attorney, you could wind up in a critical financial or medical situation where you’re unable to get things done that have a big influence on your (and your family’s) future. Having a POA in place is the only way to have a legal guarantee that someone with your best interests in mind also has the power to act on those interests.

How Does a POA Work? 

A power of attorney protects your life and property from third parties like courts or government agencies by letting you name an agent who can speak for you in the event you’re unable to do so yourself. Wondering if you even need a power of attorney? The answer is yes!

Everyone needs this kind of legal coverage, because anything can happen—from freak accidents to acts of God. Those are the times when you and your family need a trusted ally who can take action on your behalf. You might also need a POA for less serious reasons and more as a convenient legal tool. Let’s look at a couple of examples.

Ryan is young and single, and he’s making pretty good money. You might guess he doesn’t need to worry about somehow losing the power to make big life decisions for himself. But you’d guess wrong. Just imagine Ryan’s overseas on a business trip. Between meetings, a friend texts him about an amazing investment opportunity happening back home—and it’s this-day-only. Ryan wants in! But he can’t authorize the deal by Skype. His friend would need to be Ryan’s POA to make the deal happen for him.

Lauren’s also relatively young and healthy, but she’s scheduled to have a minor outpatient surgery soon. It’s unlikely, but if something were to go wrong in the operating room, Lauren could lose the ability to speak or act for herself. As someone with no close family, Lauren would feel more assured and have peace of mind going into the procedure with a trusted agent as her POA.

Life’s full of unknown possibilities. But having a POA in place can often help you through tough times. It’s a sensible and easy way to ensure that someone who has your back also has the legal power to get things done for you.

Different Types of POAs 

The basics of what a POA can do for you are pretty simple. But to be sure you choose the right document for yourself, there are a few different types of POAs you should know about. Here’s the breakdown:

General Power of Attorney 

With this form of power of attorney, your agent’s ability to do things for you is pretty broad. Their powers include:

  • Hiring professional help for you
  • Handling your business deals
  • Operating your business
  • Buying insurance for you
  • Paying your bills
  • Signing documents on your behalf

And that’s just a few of the ways an agent can help you in a general power of attorney. This form of POA might come in handy if you want help with financial needs and you know someone with a lot of experience in that area who you really trust.

But a general POA is not ultimately the kind we recommend. That’s because a lot of us would rather keep most life decisions in our own hands until we’re actually unable to make them—whether through being out of town, out of commission or for some other unforeseen circumstance.

Also, a general power of attorney isn’t usually durable, unless you specifically make it so. That means it stops working as soon as you either die or become incapacitated.

Durable Power of Attorney

The great thing about making your power of attorney durable is that it either starts (or continues) to be in operation at the most critical moments—those times when, through illness or injury, you become physically or mentally unable to make decisions for yourself (aka you’re incapacitated). Let’s look at two ways you can make a durable power of attorney:

  1. Making your POA durable as soon as you sign it. In this scenario, your agent has powers similar to those in a general POA, with the key difference that they will remain your legal agent even after an incapacitating event happens to you. With a durable POA, you’re saying that you trust your agent not only to help you with certain ongoing decisions while you’re up and at ‘em, but also if you should lose the power to communicate your wishes in the future.
     
  2. Springing POA. With this format, the power of attorney allows your agent to act for you when, and only when, you become incapacitated. (That’s when it springs into effect!) In this case, the most important thing to spell out in the POA is what you want the standard to be for determining what should count as being incapacitated. Typically, you’ll either require that a doctor certify you as mentally incompetent, name a specific doctor to do so, or require that any two licensed doctors agree that you’re incapacitated.

It’s also worth mentioning the Uniform Power of Attorney Act (UPOAA), a federal law passed in 2006 that has since been enacted by every state except Louisiana. It’s a law with several purposes, but the main goal is to ensure that when people are appointed as agents in POA documents, they are actually acting in the principal’s best interests. The UPOAA allows state courts to review what an agent does for their principal. They can even remove an agent who’s mismanaging the principal’s money, property or health—sometimes for personal gain.

Whatever kind of power of attorney you have, they should all be durable. The best thing about having a durable POA in place is that if you ever do become incapacitated, it helps your family avoid a legal fight for the right to make the best decisions for your—and their—future. After all, fighting a health battle is hard enough without the additional worry of legal issues.

Health Care Power of Attorney 

A health care power of attorney (or medical power of attorney) gives your chosen agent the ability to make certain medical decisions on your behalf. If you have one, it only becomes effective when you:

  • Lose the power to express yourself, either through disease or dementia
  • Fall into a coma after a brain injury or stroke
  • Have a lapse of mental health that leaves you mentally incompetent

Thankfully, those are unusual circumstances—but they do happen often enough to make planning for them necessary and wise. Only a doctor can legally decide when a medical POA applies. A medical POA can work together with a separate and related document, the living will, but the two can also be in conflict at times. If you already have a living will, just be sure your MPOA agent is aware of what’s in it and that it’s updated regularly to reflect your most recent wishes.

Financial Power of Attorney 

Just as a health care POA only allows your agent to make medical choices for you, the financial POA only empowers your agent to make money decisions for you.

In the example of Ryan’s business trip from earlier, he missed out on a business deal because he was out of town—and without a power of attorney. Having a financial POA in place would have been a great solution to his problem. If your work involves a lot of travel, but you also have local real estate or business ventures that require your legal approval to be transacted, a financial POA is essential.

Another similarity a financial POA has with its medical twin is the way it protects you and your family from a preventable legal battle. In this case, a financial POA empowers your agent to make crucial decisions about what should happen to your money.

Should You Have More Than One Agent? 

The short answer is yes. But you need to be crystal clear in the document, and with both agents, about who’s becoming your primary agent and who would be your alternate agent from the get-go.

The reason for having more than one agent is to ensure that if your primary agent ever becomes unavailable in an emergency, your alternate agent can act for you. So far, so good!

But don’t forget to spell out who’s primary, and who’s secondary. While it’s a good idea to make a Plan B, be aware that if your POA lists two agents without identifying the primary, legal issues could arise. What if both agents seem to have equal say, but they disagree at a critical moment about how to manage your stuff? You can easily head this off by clarifying it in the POA.

“But my Aunt Jody and my Aunt Loretta are both super smart ladies, and I don’t want to offend either of them. What should I do?” Here’s what we recommend for keeping the peace: If you know of two worthy people who both want the slot, let one of them be the alternate. Let’s say, Aunt Jody. She might not like coming second place in the Aunt Agent sweepstakes, but at least she can take over if something happens to Loretta.

How to Pick Your Agent 

This is actually really easy. The only person you want making huge choices about your medical or financial wellbeing is someone you know really well, who also knows you. Some obvious contenders:

  • Your spouse
  • A sibling
  • An adult child
  • A coworker or colleague with a lot of wisdom

From a legal perspective, there are also a few boxes they need to check. For the power of attorney to be legally binding, all the following must be true of your agent:

  • A mentally competent adult
  • Has read and understood your living will
  • Understands your financial goals (for financial POA)
  • Understands your medical wishes (for health care POA)
  • Cannot be your health care provider (for health care POA)

Of course, none of those things can be substituted for the most important factor: trust. No matter who you choose, it has to be someone you know has your best interests at heart—whether that’s your Aunt Loretta, or your Cousin Vinnie.

How to Get a Power of Attorney 

This is something we all need to take care of, sooner rather than later. Whether you believe you might be incapacitated soon, or you’re healthy as a horse and rarely leave home—you need a POA. Having a POA in place that names a trusted agent can save your family untold headaches and heartaches when unthinkable stuff happens to you. Things like car accidents or being stuck in a faraway place during a family crisis.

Creating a power of attorney as part of your will is easy, smart and a great way to build your peace of mind.

What Is a Medical Power of Attorney?

What the heck is a medical power of attorney? For one thing, it’s a mouthful. But the simple answer is, it’s a document you can use to get things done when you’re in a medically tight spot.

What Is a Living Will and Do You Need One?

Finding yourself in a serious medical situation and unable to communicate is a scary thought. But a living will can bridge that gap. We’ll show you how it works and whether a living will is right for you.

What Is a Simple Will?

Your will doesn’t have to be a time-sucking headache to create. You can use a simple will (also called a basic will) to explain who gets your stuff and who takes care of your kids if you pass away.

What Is a Financial Power of Attorney?

Don’t get intimidated by all the syllables and ten-dollar words. A financial power of attorney isn’t anything fancy. It’s just a piece of paper that can save you a heap of trouble.
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