Different Types Of Powers Of Attorney And Which Is Best For Me?
A power of attorney is a useful tool in the estate planning process. However, because a power of attorney gives another person a tremendous amount of authority over your financial affairs, you must be very cautious when choosing the type of power of attorney that is best for you. You must also give a great deal of consideration to who should have authority to act on your behalf.
What is a Power of Attorney?
A power of attorney is a legal document that gives you the ability to authorize another person or persons to act on your behalf. The person you appoint is referred to as your agent or your attorney-in-fact. The powers you convey to your agent depend on the type and purpose of the power of attorney you choose.
What Type of Power of Attorney do I Need?
Each type of power of attorney has a specific purpose and conveys a different level of authority on the attorney-in-fact; therefore, it is important to understand the various types of POAs that are available.
➢ General Power of Attorney
A general power of attorney is one of the broadest types of POA’s available. A general power of attorney allows your agent to do anything you can do yourself with regard to your finances and property. Examples of actions your agent may take in your name include, but are not limited to:
- Buying and selling real estate
- Opening and closing financial accounts
- Writing checks
- Paying bills
- Borrowing money
- Signing contracts
- Buying life insurance
- Settling claims
➢ Durable General Power of Attorney
Unless you specifically include a “durability” clause in a general power of attorney, the POA terminates if the principal becomes mentally or physical incapacitated. However, by adding language directing that the power of attorney shall remain in full force and effect in the event of incapacitation, your agent can continue to act in your name even though you are incapacitated by a physical or mental illness or condition. This is a very useful estate planning tool if you are concerned about who would assume authority of your finances and assets in the event you are unable to take care of those matters yourself.
➢ Limited Power of Attorney
A limited power of attorney is also referred to as a special power of attorney. This type of POA gives your agent the power to act on your behalf for a very limited purpose. For example, you may give your agent the authority to act on your behalf to sell a specific piece of real estate. When the real estate closing is finalized, the limited power of attorney ends. A limited power of attorney restricts the actions your agent may take on your behalf. This is a much better option for you if you do not want to give your agent broad, unrestricted powers (i.e. general power of attorney) but you need to designate someone to act on your behalf for one specific event.
➢ Spring Power of Attorney
Sometimes referred to as a “springing” power of attorney, this type of POA is very similar to a general power of attorney with one exception. A spring power of attorney does not become effective until you become physically or mentally incapacitated. In order to avoid an issue with when the power of attorney becomes effective, you must include very specific language defining what constitutes “incapacity” to trigger the power of attorney. You must avoid ambiguity when defining the term “incapacity” for the purposes of a spring power of attorney.
➢ Healthcare Power of Attorney
A healthcare power of attorney allows you to appoint an agent to make medical decisions on your behalf if you become incapacitated or you are unable to make decisions regarding your healthcare for any reason. Sometimes a healthcare power of attorney is confused with a living will. A living will appoints an agent to make “end of life” decisions for you if you cannot make those decisions for yourself (i.e. whether to administer life-saving medical treatments, insert a feeding tube, etc.).
While some states allow you to include provisions of a living will in your healthcare power of attorney, you should consult a probate attorney to ensure that you have a comprehensive health care directive that ensures your wishes will be carried out in the event you are unable to speak for yourself.
Who Should You Appoint As Your Attorney-in-Fact?
You are granting your agent a tremendous amount of power over your finances, assets, and healthcare. Your agent has the power to borrow money in your name, liquidate your assets, and make healthcare decisions; therefore, you must choose an agent that you can trust to act in your best interest. It is also helpful if your agent has at least some financial knowledge to make good decisions on your behalf. Other things to consider when choosing an agent include:
- Does this person understand your wishes and values?
- Does this person understand his or her duties?
- Does this person take the matter seriously?
- Is this person fair minded and trustworthy in your opinion?
Taking time to carefully consider who you will choose as your attorney-in-fact will ease your mind and make you feel better about signing your power of attorney.