Powers of Attorney, Explained

Most of us don’t know what powers of attorney are until we need them. But we should all have at least one so decisions don’t need to be made on the fly — or by the courts.

 When someone can no longer make decisions, it can get messy quickly if there are disagreements over who should have power of attorney, or what actions that person is taking. Worse, is if someone becomes incapacitated without a financial power of attorney, the courts may appoint a conservator to make decisions. This is a lengthy and expensive legal proceeding over which your family will have no control. Everyone should have a durable financial power of attorney in effect.

What Is a Power of Attorney?

A power of attorney (POA) is a document that gives an agent the right to act on behalf of someone else. Five different types grant varying levels of authority. It’s important to note that the POA is by state. If you have POA for your uncle in North Carolina and he moves to Florida, the POA is invalid. Some states require annual recertification. Also, POAs die with the person. If you have POA for Aunt Caroline and she passes away, you no longer have any legal right to handle her financial or other affairs, unless granted in a will. Finally, Social Security is a federal, not a state, program. As such, it does not recognize POAs. You must become a representative payee to handle Social Security on behalf of someone else.\

The five types of POA offer different types of protection. 

1.     Durable Power of Attorney (DPOA) vs. Non-Durable Power of Attorney.  Unless stated otherwise, a POA becomes effective immediately after it is signed (and notarized). If it is durable, the agent will continue to have authority to make decisions even if you become incapacitated, such as by having dementia or going into a coma. If it is a non-durable POA, it simply means that the agent loses authority if you become incapacitated. As we said above, all POAs end with the person’s death. The person can also rescind a POA with a revocation form, as long as he or she is competent. Most of the POAs listed below can be made durable.

2.     Medical Power of Attorney.  Also known as an advance directive, a medical power of attorney allows an agent to make medical decisions for you if you cannot make them yourself. These include surgical procedures, organ donation, choice of health care facilities and a broad range of medical treatment. Your agent will also make sure health providers carry out wishes you have specified in your do not resuscitate (DNR) form or living will.

3.     General Power of Attorney.  A general POA grants broad powers. The agent can make decisions for you regarding business, financial, legal matters and real estate. Your agent will be able to pay bills, enter into contracts, buy or sell property and manage banking. Because it is so extensive in nature, it is usually used for a short period, such as when you will be traveling extensively where you cannot be reached.

4.     Limited, or Special, Power of Attorney.  This gives an agent the power to act on your behalf just like a general POA, but it its limited to specific purposes. You may elect to grant someone the power to cash checks for you, for example, but not access or otherwise manage your finances. It’s possible to create any number of limited POAs for different agents. They will expire once a specific task is done, or at the time specified on the document.

5.     Springing, or Conditional, Power of Attorney.  This type of POA only goes into effect in the event of a medical condition (usually incapacitation) or other trigger specified in the POA. A soldier might create a springing power of attorney that is only in effect when he or she is deployed overseas. It can end when the person becomes incapacitated or at a specified date. As with every type of POA, it will also end upon death.

When drawing up a POA, it’s important to be very careful and specific about the agent’s activities and duties. Financial institutions and brokers will look for specific language, and if it’s not there, it can cause some big headaches. One financial agent listed on a client’s POA was unable to access her CDs because the bank had erroneously listed them as being in a trust. If a trust is involved, the trustee or successor trustee must be the one to make financial changes. These sorts of issues can get thorny and require trips in front of a judge when the person is incapacitated.

Source:  Society of Certified Senior Advisors Blog, May 24, 2021

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