At its most basic, a power of attorney (POA) is a legal document that allows someone to act on your behalf when it’s either inconvenient or impossible to act for yourself.
For example, POAs allow a spouse to manage property when the other is not available. A cancer patient can rely on a caregiver with a power of attorney to pay her bills when she’s feeling too ill to do it herself. Members of the military often execute a POA before leaving on deployment, authorizing someone to do everything from selling their home and driving their car to filing their taxes while they’re gone. Similarly, college students might give parents a power of attorney before leaving for school.
A power of attorney can also allow you to rely on an expert to handle complex issues. You can use a power of attorney to authorize an accountant as your representative before the IRS or have a real estate agent act on your behalf at the closing when you’re buying a home.
[Read: How to Find Legal Help When You Can’t Afford a Lawyer]
Who Needs a Power of Attorney
“There are some times when people definitely need a power of attorney, and other times when it is a good idea to be prepared,” says William MacDonald, director of academic and bar success and associate dean at University at Buffalo School of Law. “So, in that sense, everyone needs it.”
Those who definitely need a power of attorney are those who know they will become unable to make legal decisions for themselves in the future, such as the elderly or those with grave illnesses and physical conditions.
Meanwhile, the “be prepared” segment refers to the reality that, whether due to accident or illness, most individuals will spend some time in varying states of incapacity. They will need others to care for them at that point, a time when stress and emotions are high. Having a POA in place before you need it can reduce that stress and conflict, says MacDonald, an attorney who practiced estate law in Virginia and Florida before joining academia.
Starts and Stops: How Powers of Attorney Begin and End
POAs are usually a matter of state law, and states differ in terms of a POA’s exact requirements. But the basic concepts are the same. The starting point is a “general power of attorney,” a document where a person, the principal, gives someone else (known as the principal’s agent or “attorney-in-fact”) the ability to act on the principal’s behalf in any legal capacity.
By default, a POA is a durable POA. A durable POA is valid from the moment the document is executed. It continues in effect until the principal’s death.
Principals, however, may opt for a “limited power of attorney.” With a limited POA, the agent has control only over specific issues. POAs can even be limited to a single transaction. And POAs can also be valid only for a finite time. To do that, the principal can include start and stop dates in the document or, alternatively, use a springing POA.
A springing POA is inactive until a specified event takes place. After that, it “springs into action.” For instance, someone may have a POA that only becomes active in the event of a medical emergency, such as if they become incapacitated during a car accident.
Significantly, a principal can immediately end a power of attorney by creating a second document that revokes the POA.
[Read: Things You Need for an Estate Plan at Any Age.]
Special Cases: POAs for Finances and Health Care
Two of the more common forms of limited POAs relate to finances and health care.
With a financial power of attorney, an agent controls cash assets and investments. The agent can withdraw money from a principal’s bank accounts, pay bills and complete other tasks. A principal has recourse if an agent steals from them, with the ability to file criminal charges or a lawsuit, but that’s after the fact. Therefore, to preemptively reduce the risk, principals may choose to only give an agent authority over particular accounts.
With a health care power of attorney, the agent decides the principal’s medical care, from the types of treatments they’ll receive to facilities where the care will take place. Some states, however, limit the use of health care POAs. Texas prohibits agents from ordering some types of treatment, while Utah doesn’t allow health care POAs. Instead, Utahans must use another document, an “advanced directive,” to address medical care.
[READ: Do-It-Yourself Estate Planning Mistakes.]
Choosing the Right Person to Be Your Agent
Lately, the concept of having a POA has been impacted by stories of unscrupulous agents stealing vulnerable principals’ money and property, even denying them medical care or forcing them into nursing homes when unnecessary. Incidents like these do happen, and legal scholars have been advocating to strengthen legal protections, particularly to protect the elderly.
“But you don’t hear about the 99% of the time when it makes everyone’s life so much easier,” MacDonald says. And rather than thinking that the very premise of a power of attorney is a bad idea, “If you’re worried that someone will turn this against me, then maybe that’s the wrong person to pick?”
First, a principal should choose someone they trust. But they should also consider the more practical aspects of the role. While a family member may be preferable for health care decisions, your best friend who worked on Wall Street might be better to look after your portfolio. Geographic proximity should also be a factor, especially if they will be responsible for physical property.
Becoming someone’s agent is a responsibility that not everyone is able or willing to accept. That’s why, MacDonald suggests, before appointing anyone, discuss your expectations and give them clear guidelines on how to best make decisions on your behalf.
In his role as a law school professor, MacDonald works with “digital-native” students, and he acknowledges that, when you can pay bills by phone and use a trackpad to sign legal documents, the power of attorney may seem less relevant than it had been in the past.
“As more of the world has become more interconnected, they may think this is a quaint idea,” MacDonald says. “But again, the whole idea is to plan for things you hadn’t anticipated but you want people to react with good judgment.”
Accidents and other unforeseen events still happen. A power of attorney helps ensure that you’re ready when they do.
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What Is Power of Attorney? originally appeared on usnews.com
