A power of attorney is a legal document that gives another person the authority to make decisions on your behalf when you become incapable of doing so due to injury or other circumstances. The person given the authority to act is known as the agent (or, in many cases, as the attorney-in-fact).
The person on whose behalf the agent is allowed to act is referred to as the principal. Having a valid power of attorney in place can be a great asset to you and your family, especially in a time of crisis.
Many powers of attorney can specifically address one or more aspects of a family’s finances, including giving someone the authority to
- Pay the bills, including taxes;
- Buy or sell property (including taking out a mortgage or selling your car);
- Sign off on investment or bank transactions;
- Sign off on insurance policies; and
- Hire someone to represent you in court (if necessary)
You can also give your attorney-in-fact the authority to take responsibility for other affairs, such as making repairs to your home or running your business.
The person you choose to give power of attorney does not actually have to be an attorney. Power of attorney simply means that you are allowing someone else to take on the responsibilities to deal with certain aspects of your finances that normally only you would be allowed to handle.
Many people commonly designate a family member or close friend as their attorney-in-fact. Additionally, someone who has been granted power of attorney cannot simply do as they please. Instead, they take on the responsibility of acting in your best interests.
There is no strict requirement that you have a power of attorney in place. However, if you become unable to manage your own affairs, it can make things more difficult for you and your family.
Often, if you do not have a power of attorney and you become incapacitated, your state may require a court hearing in order to prove you are mentally incompetent and appoint a legal guardian to act in your best interests. Having a power of attorney in place avoids any undue delay in case something were to happen to you.
There are different types of powers of attorney, depending on what responsibilities and what tasks the attorney-in-fact is allowed to take on. You can determine the scope of your attorney-in-fact’s duties in the written document.
You can control when the power of attorney goes into effect based on how your power of attorney is drafted. You can make the decision to have it go into effect as soon as it has been signed. Or, of course, you could also make the power of attorney conditional upon your first becoming incapacitated.
If you decide to exercise that option, the power of attorney document should lay out the process of doctor certification. Basically, if the power of attorney only becomes effective if you have become incapacitated, then the document should detail how to determine whether you are incapacitated.
Yes. Just like you can control when the power of attorney becomes effective, you can also control when the power of attorney ends. There are also certain circumstances that will cancel the power of attorney.
These may include:
- You can cancel or revoke the power of attorney yourself at any time;
- If there is some sign of fraud or mental incompetence, a court may declare the power of attorney document void or invalid;
- In most states, if you grant your spower power of attorney, and you end up getting divorced, your spouse’s power of attorney may automatically become null and void;
- If your attorney-in-fact is not available when needed, their power may be cancelled. For this reason, it is a good idea to name an alternate attorney-in-fact; and
- If you die, the power of attorney is automatically cancelled. Your attorney-in-fact cannot continue to manage affairs for you after your death. If you want that person to have control of your finances and affairs after you die, then you must name them executor of your estate in your will.
Naming a person to serve as your attorney-in-fact is an important decision to make. Your attorney-in-fact will have power over your finances and other business, so you want to make sure you choose someone trustworthy. Deciding which finances or other affairs your attorney-in-fact is also important, and can be a complex process. While your appointed agent does not have to be a lawyer, you may want to talk to a lawyer about setting up your power of attorney.
A qualified estate planning attorney can help you decide on the right person to take on the responsibilities of power of attorney. Your attorney can also help you figure out which financial matters would be the most appropriate and safest to allow your attorney-in-fact to handle, and which financial matters you might want to keep confidential. Your attorney can also draft the document that bestows the power of attorney on your selected agent, making sure that it covers exactly the assets that you want and need it to.