Power of attorney

An important aspect of detailed estate planning is appointing a trusted individual to act as a financial power of attorney to work on an individual’s behalf should they become temporarily incapacitated. A financial power of attorney can be set up to spring into effect only if the individual is deemed medically unable to make their own financial decisions and manage their day-to-day affairs. When incapacitation occurs, the financial power of attorney takes over the daily functions of an estate until the individual fully recovers and can act on their behalf. This can help ensure a seamless oversight of an individual’s estate during a stressful time.

Proper estate planning is inclusive of everything an individual needs to predetermine in the event of death or incapacitation. Regardless of the size of an individual’s estate or net worth, ensuring a seamless transition of property and assets to loved ones is vital during a time of stress and grief that takes its toll on a family. When family members do not have to worry about possibly winding up in probate court or dealing with the details of how an estate is to be dispersed, it offers them a considerable measure of relief during a very trying time.

A power of attorney (POA) is a document that allows you to appoint a person or organization to manage your property, financial, or medical affairs if you become unable to do so.

However, all POAs are not created equal. Each type gives your attorney-in-fact—the person who will be making decisions on your behalf—a different level of control.

General Power of Attorney

A general power of attorney gives broad powers to a person or organization (known as an agent or attorney-in-fact) to act on your behalf. These powers include handling financial and business transactions, buying life insurance, settling claims, operating business interests, making gifts, and employing professional help.

A general power of attorney is a useful tool if you will be out of the country and need someone to handle certain matters or when you are physically or mentally incapable of managing your affairs. A general power of attorney is often included in an estate plan to make sure someone can handle financial matters.

Special Power of Attorney

You can specify what powers an agent may exercise by signing a special power of attorney. This is often used when one cannot handle specific affairs due to other commitments or health reasons.

Selling property (personal and real), managing real estate, collecting debts, and handling business transactions are some of the common matters specified in a special power of attorney document.

Health Care Power of Attorney

A health care power of attorney grants your agent authority to make medical decisions for you if you are unconscious, mentally incompetent, or otherwise unable to make decisions independently.

While not the same thing as a living will, many states allow you to include your preference about being kept on life support. Some states will allow you to combine parts of the health care POA and living will into an advanced health care directive.

Durable Power of Attorney

Suppose you become mentally incompetent due to illness or accident while you have a power of attorney in effect. Will the document remain valid? To safeguard against any problems, you can sign a durable power of attorney. This is simply a general, special, or health care POA with a durability provision to keep the current power of attorney in effect.

You might also sign a durable power of attorney to prepare for the possibility that you may become mentally incompetent due to illness or injury. You must specify in the power of attorney that it cannot go into effect until a doctor certifies you as mentally incompetent. You may name a specific doctor who you wish to determine your competency or require that two licensed physicians agree on your mental state.

Choosing the Right Power of Attorney

Trust is a crucial factor when choosing an agent for your power of attorney. Whether the agent selected is a friend, relative, organization, or attorney, you need someone who will look out for your best interests, respect your wishes, and won’t abuse the powers granted to him or her.

An agent needs to keep accurate records of all transactions done on your behalf and provide you with periodic updates to keep you informed. If you cannot review updates yourself, direct your agent to give an account to a third party.

As for legal liability, an agent is held responsible only for intentional misconduct, not for unknowingly doing something wrong. This protection is included in a power of attorney documents to encourage people to accept agent responsibilities. Agents are not customarily compensated; most do it for free.

Should you, a friend, or relative suspect wrongdoing on your agent’s part, report the suspected abuse to a law enforcement agency and consult a lawyer.

Multiple Powers of Attorney

While you can appoint multiple agents, decide whether these agents must act jointly or separately in making decisions. Multiple agents can ensure more sound decisions, acting as checks and balances against one another. The downside is that multiple agents can disagree, and one person’s schedule can potentially delay important transactions or signings of legal documents.

If you appoint only one agent, have a backup. Agents can fall ill, be injured, or somehow be unable to serve when the time comes. A successor agent takes over power of attorney duties from the original agent if needed.

Power of Attorney Challenged

A power of attorney is valid only if you are mentally competent when you sign it and, in some cases, incompetent when it goes into effect. If you think your mental capability may be questioned, have a doctor verify it in writing. Suppose your power of attorney doesn’t specify requirements for determining mental competency. In that case, your agent will still need a written doctor’s confirmation of your incompetence to do business on your behalf. A court may even be required to decide the competency issue in some circumstances.

Legally-Binding

You must sign and notarize the original power of attorney document and certify several copies. Banks and other businesses typically do not allow your agent to act on your behalf unless they receive a certified copy of a power of attorney.