What is a Power of Attorney?

05/18/2012

When most people think about estate planning, they think about what will happen to all of my stuff when I die.  Planning for death is an important part of the estate planning process, but it is not the only part.  What happens if you become disabled?  Who will make finicial decisions on your behalf?  Generally, another critical part of an estate plan consists of a power of attorney.

A power of attorney is a legal document where you can use give someone else the authority to take specific actions on your behalf, such as signing your checks to pay your bills, signing tax returns, buying or selling property, changing beneficiary designations and most other financial-type actions.  The principal of the power of attorney (you) determines the amount or type of power given to the attorney-in-fact (the person acting for you).  The power of attorney can grant very specific powers where an attorney-in-fact has authority to deal with only one particular issue (a specific power of attorney) or the power of attorney can grant broad general powers where the attorney-in-fact has authority to deal with most of your financial matters (a general power of attorney).

The person you appoint to serve as your attorney-in-fact is up to you.  If you are married, typically the spouse is appointed.  It is also a good idea to name successors in the event the initial person you name is unable to serve.

A power of attorney can be durable or not durable.  If a power of attorney is durable, it remains valid and in effect even if you become incapacitated and unable to make decisions for yourself. If a power of attorney is not durable, it is not valid in the event of your incapacity.  All powers of attorney (whether durable or not durable) become void at death.

A power of attorney can grant powers to act to your attorney-in-fact as soon as the document is signed, in which case both you and the person you appoint would be able to take actions on your behalf.  Alternatively, a durable power of attorney can be drafted so your attorney-in-fact only has power to act on your behalf if or when you become disabled and you cannot act for yourself.  This is referred to as a springing durable power of attorney.

Besides financial matters, powers of attorney can also cover health care matters.  A health care power of attorney appointes someone else to make medical decisions for you if you cannont make your own medical decisions. 

Hope this helps you get a better understanding of a power of attorney.