What Is Power Of Attorney?
You might not think youll ever need to understand the basics of power of attorney, which is the act of granting someone else the power to sign legal documents on your behalf. But dont be so sure  life can take some unexpected turns. There might be a time when you need to grant power of attorney, also known as POA, to someone else. There might also be a time when youre on the other end of this arrangement, taking on power of attorney duties for someone else. Your father might be unable to take off work to take her to the surgery. Your mom could have you sign a form making you a temporary health care power of attorney. You would then have the right to sign any forms ensuring your mother has the medical care she needs during her surgery. A power of attorney is a form required to grant someone else the power to sign legal documents on your behalf. Of course, its not quite as simple as that. A power of attorney can grant complete authority or can be limited to certain acts or periods of time. Full POA only occurs when someone is granted the right to make all decisions on your behalf and in your best interest. Some of the decisions a power of attorney has the authority to make are:  Financial decisions  Health care decisions  Gifts of money  Guardianship  Limited POA, as its name suggests, is only for specific events or time periods. For instance, you might assign someone with limited power of attorney to sign real estate and financial documents on your behalf if youre unable to attend the closing on your home loan. How To Get Power of Attorney  There is no one simple process to cover accepting or giving someone else power of attorney. Youll have to consider your specific situation to understand how you can get power of attorney. Say you want to gain POA so you can make decisions about your aging parents medical treatment. You should first speak with your parents to determine if they too want this. Theyll have to sign a form granting you power of attorney  forms that will vary by state  and they must be considered mentally competent in order to sign this form. If someone (a child, relative or trusted advisor) wants you to sign a power of attorney form, remember this rule: You need to give your consent and signature for the power of attorney to take effect. And you can only give power of attorney to someone if you are legally competent to make this decision. Youll also need to determine what type of power of attorney you want to accept or give over. Well cover these types in more detail later, but its important to know that you can accept or give up power of attorney thats temporary, permanent, only covers medical decisions or only covers financial and tax decisions. Where To Get Power Of Attorney Forms  You can find power of attorney forms online, but its best to work with an attorney in your state, as there is not a standard POA form for all 50 states. The power of attorney process can also be complicated, and its best to rely on the legal advice of someone who knows your states rules. How much the power of attorney concept costs will vary. If you accept power of attorney through a legal website, the cost might be $50 or less. If you work with an attorney, the cost will probably be higher because of attorney fees. Again, though, working with an attorney can help you avoid possible legal problems in the future. Also, you should remember that though power of attorney is usually given to family members, it doesnt have to be. You can give power of attorney to friends, co-workers or a trusted financial advisor. You can also accept power of attorney at the request of such non-family members. How To Fill Out A Power Of Attorney Form  Each states power of attorney form differs. A good example, though, is the durable power of attorney form for Minnesota. A durable power of attorney, also known as an enduring power of attorney, allows your power of attorney to remain in effect even if you become mentally incompetent. Say you fall into a coma. With a durable power of attorney, your agent (the person to whom you gave your power of attorney) can still sign a contract on your behalf even though youre incapacitated. 1. Read The Description  The top of the Minnesota durable power of attorney form gives a brief description of the powers granted by the document. It also states that you have the right to revoke the power of attorney. 2. Add Your Personal Information  Next, the form asks for the name and address of the person granting power of attorney and the names and addresses of the people receiving power of attorney. These people are listed in the form as attorneys-in-fact. 3. Designate Any Successor Attorneys-In-Fact  Theres also a space for successor attorneys-in-fact. These are people you designate to receive your power of attorney if one of your first choices should die, resign or become unable to serve. Listing successors is optional. 4. Choose An Ending Date  You also have the choice of adding an ending date for the power of attorney. This is optional as well. You might choose to grant power of attorney on a permanent basis, meaning you wouldnt need an end date. 5. List The Powers You Are Granting  The form then lists several powers that you can grant to your agent. You should put a check mark or X next to the powers that youre granting. You can, for instance, give power of attorney to a family member for banking transactions, insurance transactions or business operating transactions. You can also choose to grant power of attorney to an agent for all the powers listed on the form. 6. Incapacitation  The form next asks whether you want power of attorney to remain in effect if you become incapacitated or incompetent. For example, if youre injured in an auto accident and fall into a coma, the power of attorney you granted will remain in effect even though youre incapacitated (if you choose that option). 7. Sign The Form  Theres also a section on the form for your signature and for the signatures of the people who were named your attorneys-in-fact. Youll also need the signature of a notary public to make the power of attorney form official. 8. Have It Notarized  Many states require a POA form to be notarized. Even in states that dont require a notary to sign the form, doing so can help you avoid any legal issues in the future. Types Of Power Of Attorney  There are different types of powers of attorney for different purposes. Although understanding these different types of POA can seem overwhelming at first, its often very simple: Your specific situation will usually dictate which type of power of attorney you need. Some of the main types include general, limited, health care, durable and springing. Heres a look at each of these types. General Power Of Attorney  A general power of attorney is typically used to allow your agent to handle your affairs during a limited period when youre unable to do so yourself. You may need this when traveling or if youre physically or mentally unable to handle your affairs. A general power of attorney is often part of an estate plan. With a general power of attorney, an agents power usually includes the ability to buy, sell and rent property, handle banking transactions, enter safety deposit boxes, file tax returns, tend to government benefits, enter into contracts, purchase life insurance, settle claims and exercise stock rights. You can also grant your agent the ability to maintain your business interests, make transfers to revocable living trusts, hire professional assistance and make gifts. Limited Power Of Attorney  A limited or special power of attorney authorizes your agent to act on your behalf only in specific situations. A limited power of attorney describes the action that an agent will perform and might also come with an expiration date. This power of attorney might only kick in if a specific event takes place. For instance, you might give an agent the power to sign the documents needed to sell your home if you become mentally incapacitated. You might also give an agent the power to sell stocks on your behalf if those stocks reach a certain value while youre out of the country and therefore unable to handle the sale yourself. Common special powers of attorney include the ability for your agent to make financial decisions for you, manage your business interests, handle your banking transactions, make estate planning decisions for you (including gifts), enter safety deposit boxes, handle government issues and U.S. securities transactions, collect debts or borrow money on your behalf, manage real estate for you and sell your personal property. Health Care Power Of Attorney  A health care power of attorney, also known as a medical power of attorney, allows your agent to make health care decisions on your behalf if youre unable to do so. If youre in surgery and unconscious, you might assign someone power of attorney to make medical decisions on your behalf while youre undergoing this surgery. You might also hear this type of power of attorney referred to as a health care proxy. Again, this basically means that youre appointing someone to make medical decisions on your behalf if you cant make them on your own. A medical POA doesnt forfeit your right to give medical direction to your doctors when youre able to do it yourself. It only becomes effective when you dont have that capacity. In your power of attorney document, you can name a doctor whom you wish to make that decision or you can require that two licensed physicians agree on your mental capacity. Most organizations wont allow your health care agent to act on your behalf without a doctors permission. Note that a health care power of attorney differs from a living will. While a living will (or health care directive) lets a doctor know the types of medications youd want, only a power of attorney can authorize someone to make decisions for you that arent specifically covered in your living will (such as taking you off life support). Durable Power Of Attorney  A durable power of attorney allows your power of attorney to remain in effect even if youre mentally incompetent. Without the durable language, your power of attorney agent can only exercise any power that is also accessible to you. For example, if youre in a coma and cant sign a contract, your power of attorney cant sign for you, either. All types of powers of attorney can be made durable. However, a durable POA may allow your agent to carry out the powers you granted regardless of your health or ability. Its always important to give your power of attorney to someone trustworthy. Springing Power Of Attorney  Some people arent comfortable granting a loved one or family member power while theyre healthy. A springing power of attorney only takes effect upon a specified event, condition or date. While it may sometimes be the best option, springing power of attorney can get tricky if the specified condition is a formal determination of incapacity. Youll need someone to determine that youre incapacitated. Usually, this person is a doctor. The challenge lies in deciding what exactly equals incapacitated. Any disagreement over interpreting your degree of incapacity can cause a delay in your agents ability to act on your behalf. If this disagreement ends up playing out in court, it can get quite expensive. In addition, springing power of attorney isnt accepted in all states. Child Care Power Of Attorney  A power of attorney for child care allows you to appoint an agent who will take care of your children temporarily when youre unable to do so. You might turn to this power of attorney if you have to face jail time or enter a lengthy rehab stay and dont want to lose custody of your children. Choosing The Right Power Of Attorney  As you can see, the various types of powers of attorney have a specific function and purpose depending on your needs. Think about the person or organization youd like to designate as your agent or attorney-in-fact, and have a backup plan if that person or organization is incapable or refuses to accept their role. You should consult a lawyer for any questions about the best type of power of attorney for you. When it comes to important financial, healthcare or guardianship decisions, you want to make sure that the person you appoint will have your best interests at heart. Mishandled durable POA decisions can result in bankruptcy or deprivation, and providing your bank account information to the wrong person can be extremely risky. Be sure to carefully discuss your wishes regarding specific scenarios with the individual that you appoint as your power of attorney. This will also help them when the time to make an important decision comes around. You can choose to make any family member (spouse, adult child or another relative) your POA, or you can choose any other competent adult, banker, attorney or accountant. Choosing a family member can help you protect your privacy and avoid any fees. The Bottom Line  Choosing the best power of attorney to make decisions on your behalf is an important task. Whether youre giving someone else this power or taking on power of attorney for another individual, its important to be prepared. If you have questions about using a power of attorney to buy or sell a house, contact one of our Home Loan Experts for assistance.