What Is Power Of Attorney?

Explore the essential roles of POAs, enabling individuals to manage affairs during incapacity with types like general, durable, and medical POAs.
Published on
March 19, 2024
Written by
Katie Wilkinson
Katie Wilkinson
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A Power of Attorney (POA) is a legal document that grants one person (the agent) the authority to make decisions on behalf of another person (the principal). This powerful tool is essential for ensuring that an individual's financial, health, and personal affairs can be managed during incapacity or unavailability. There are several types of POA, including general, medical, durable, and springing, each tailored to different needs and circumstances, making it crucial for individuals to understand their options and the protections each type offers.

The purpose of a power of attorney

A power of attorney grants legal authority to an agent, allowing them to make decisions about the principal's finances, legal matters, and health care, depending on the type of POA established. This authority becomes particularly essential when the principal cannot make decisions due to illness, disability, or absence. For example, a medical POA allows the agent to make healthcare decisions, while a general POA might enable handling financial transactions or property management. POA differs significantly from guardianship, where a court appoints a guardian to make decisions for someone deemed incapable of doing so themselves. While guardianship involves a court process and oversight, POA is a private arrangement that can offer more flexibility and less intrusion. Understanding these distinctions is crucial for anyone considering how best to manage their affairs or those of a loved one in the future.

Who needs a power of attorney?

Virtually anyone can benefit from having a Power of Attorney (POA), but it is particularly important for:

  1. Adults of any age: Unexpected events such as accidents or sudden illness can render anyone incapable of managing their affairs. A POA ensures that someone legally can make decisions on their behalf.
  2. Older adults: As people age, the likelihood of incapacitating conditions increases. A POA can be critical for elderly individuals to ensure their financial and healthcare needs are managed according to their wishes.
  3. Individuals with dependents: Parents or guardians responsible for minors or dependents with special needs may need a POA to ensure clear instructions and authority for their dependents' care and financial support if they cannot fulfill those responsibilities themselves.
  4. Travelers: Individuals who travel frequently for work or leisure may require a POA to manage their financial affairs or make decisions when they are out of the country or unreachable.
  5. Business owners: A POA can ensure that a business continues to operate smoothly in the owner's absence or incapacity, allowing the designated agent to make decisions, manage finances, and enter into contracts.
  6. People undergoing medical treatments or surgeries: A healthcare POA is crucial for anyone experiencing significant medical treatments or surgeries. It designates someone to make healthcare decisions if they cannot do so themselves.
  7. Individuals planning their estate: Part of a comprehensive estate plan often includes a POA, allowing for the management of one's affairs in alignment with their estate planning goals.

A POA is a practical tool for anyone interested in ensuring that their financial and personal affairs are handled according to their preferences when they cannot make those decisions themselves.

Types of power of attorney

The types of Power of Attorney (POA) cater to diverse needs and situations, offering tailored solutions for managing one's affairs:

  1. General Power of Attorney: The General Power of Attorney grants broad powers to the agent, including handling financial transactions, buying or selling property, and managing business activities. However, its authority ceases if the principal becomes incapacitated. This type is typically used for broad delegation of authority when the principal is out of the country or wishes someone to manage all their affairs.
  2. Durable Power of Attorney: Unique for its durability clause, this POA remains in effect or becomes effective when the principal is incapacitated. It is crucial for incapacity planning to ensure that decision-making about the principal's finances, legal matters, and other important affairs continues uninterrupted by changes in health status.
  3. Medical or Healthcare Power of Attorney: This POA type specifically allows the agent to make medical decisions on behalf of the principal, complementing a living will that dictates the principal's wishes regarding end-of-life care. It's vital to ensure that medical decisions align with the principal's values and preferences when they cannot express them.
  4. Springing Power of Attorney: The Springing Power of Attorney is distinctive because it "springs" into effect under conditions specified by the principal, typically the occurrence of a debilitating condition. While it safeguards the principal's autonomy, it can also introduce complications, such as determining the exact moment the POA should become active, and may delay decision-making in critical times.

Each type of POA serves a specific purpose, balancing autonomy, convenience, and protection. Understanding the nuances of each can guide individuals in making informed decisions that align with their personal and financial planning goals.


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Choosing an agent

Choosing the right agent for a Power of Attorney (POA) is a critical decision that requires careful consideration of several factors:

Criteria for selecting a reliable agent

Trustworthiness and reliability are paramount in selecting an agent, as this individual will have significant control over the principal's affairs. The agent should also have the necessary knowledge or skills to manage the tasks, whether financial decisions, healthcare decisions, or both. It's often advisable to choose someone who understands the principal's values and wishes, such as a close family member or a trusted friend.

Responsibilities of an agent

An agent under a POA makes decisions in the principal's best interest. This may include paying bills, managing investments, making healthcare decisions, or handling day-to-day affairs. The agent is expected to act in a fiduciary capacity, meaning they must act with the utmost good faith, loyalty, and care. Documentation and record-keeping of all decisions and transactions made on behalf of the principal are also critical responsibilities.

Legal and ethical considerations

An agent is bound to follow the terms of the POA document and cannot act outside the legal authority granted by it. Ethically, the agent must prioritize the principal's wishes and welfare above their own, avoiding conflicts of interest. 

The selection of an agent should also consider the potential for future changes in the principal-agent relationship, including revocation of the POA if the principal wishes or if the agent can no longer fulfill their duties effectively.

Choosing an agent is a nuanced process that balances personal relationships with practical abilities and legal requirements. It's essential to approach this decision thoroughly and ensure the chosen agent is best suited to uphold the principal's interests with integrity and dedication.

Creating a power of attorney

Creating a Power of Attorney (POA) requires adhering to specific legal standards, which vary by jurisdiction. These include clear documentation of the principal and agent, the powers granted, and adherence to signing and witnessing protocols. 

We recommend you consult a legal professional to navigate these complexities, ensure the document's validity, and tailor the POA to the principal's needs and wishes. Legal advice also helps clearly define the agent's authority, avoid common errors, and align the POA with broader estate and healthcare plans. 

To ensure the POA is legally binding, it must be executed according to state laws, often requiring notarization and possibly filing with a court or government office. The agent and relevant entities, like banks and healthcare providers, should be informed of the POA and given access to copies to avoid delays or disputes in its activation. 

Properly executed, a POA is a crucial legal tool that ensures an individual's affairs are managed according to their wishes, even in their absence or incapacity.


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Misconceptions and risks of a power of attorney

One common misconception about Power of Attorney (POA) is that it grants an agent unlimited power over all aspects of the principal's life, whereas, in reality, a POA can be as broad or as specific as the principal desires. Another misunderstanding is the belief that a POA is only for older people when, in fact, anyone can face situations where they are unable to manage their affairs.

Power of attorney also comes with potential risks that should be carefully considered:

  1. Misuse of authority: The most significant risk is that the appointed agent might misuse their authority, engaging in actions not in the principal's best interests, such as unauthorized use of funds or assets.
  2. Financial abuse: An agent with ill intentions could exploit their position for personal gain, leading to financial abuse. This risk is particularly concerning for elderly individuals, who may be more vulnerable to exploitation.
  3. Difficulty in revocation: Once an agent is appointed, revoking a POA can be challenging, especially if the principal is incapacitated or if the POA is durable, meaning it remains in effect even if the principal becomes incapacitated.
  4. Conflict among family members: The selection of one family member over others as the agent can lead to disputes or disagreements within the family, potentially straining relationships.
  5. Legal and financial institutions' reluctance: Sometimes, banks and other financial institutions may hesitate to accept a POA due to concerns about its validity or the scope of authority granted. This can complicate the agent's ability to act on behalf of the principal.
  6. Lack of oversight: Unlike guardianship, which is court-supervised, a POA generally does not involve oversight by a third party, increasing the risk of unmonitored actions by the agent.

To mitigate these risks, it's crucial to:

  • Choose an agent who is trustworthy, reliable, and understands the principal's wishes.
  • Clearly define the scope and limitations of the agent's powers within the POA document.
  • Consider appointing a monitor or co-agents to provide checks and balances on the primary agent's actions.
  • Regularly review and update the POA to reflect current wishes and circumstances.
  • Seek professional legal advice when drafting a POA to ensure that it includes protections against potential abuses.

Revoking or changing a power of attorney

A Power of Attorney (POA) can be revoked or modified if the principal changes the terms or cancels the powers granted to the agent. This is often due to a change in relationship, the agent's inability to serve, or a shift in the principal's needs. 

The process for revocation or amendment involves creating a new document that explicitly states the revocation of the previous POA or outlines the latest terms and powers granted. This document must then be signed, witnessed, and notarized, following the same legal requirements as the original POA. 

To ensure the revocation or modification is recognized, notify any institutions or parties previously informed of the original POA, providing them with the updated document to prevent the outdated POA from being acted upon inadvertently.

A note from Givers

Understanding and utilizing a Power of Attorney (POA) is critical to personal and financial decisions. It ensures that your affairs can be managed according to your wishes during incapacity or absence. Consulting with a legal professional helps tailor a POA to fit your specific needs and ensures that it is legally sound and effective. As you plan for the future, incorporating a POA into your strategy offers peace of mind, knowing that your decisions will be in trusted hands, no matter what lies ahead.

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