When you grant someone power of attorney, you give them authority to handle some or all of your financial affairs on your behalf during your lifetime. A power of attorney can have a variety of uses, but it is most common in the estate planning context.
Advanced planning with a power of attorney helps you prepare for unforeseen circumstances or incapacity, ensuring your financial affairs are managed proactively.
Creating a power of attorney can help your loved ones manage your finances, get and share information, and pay bills for you if you are alive but are incapacitated. Having power of attorney can eliminate the need for someone to go to court to get approval to handle your finances, saving time and money and simplifying the process.
Table of Contents
Introduction to Power of Attorney
A power of attorney (POA) is a vital legal document that allows you to appoint a trusted person—known as your attorney-in-fact or agent—to legally act on your behalf if you become unable to manage your own affairs. This attorney form can be customized to grant broad, general power or more limited power, depending on your needs. For example, you might authorize your agent to make financial and medical decisions, or restrict their authority to specific tasks. It is important to create your POA document while you are of sound mind, ensuring your wishes are clear and legally recognized. There are several types of powers of attorney, including durable power, which remains in effect if you become incapacitated, and springing power, which only takes effect under certain conditions, such as if you are declared mentally incapacitated. Understanding these options helps you choose the right attorney form to protect your interests and ensure that your affairs are managed according to your wishes.
Understanding Power of Attorney Roles
Laws governing power of attorney are state specific, but there are some common threads in these laws. When you give someone else power of attorney, you are the “principal.” The person or company authorized to handle financial matters for you is your “attorney-in-fact.” You do not need to be an attorney to be an attorney-in-fact.
When acting on your behalf, your attorney-in-fact, or agent, is acting in a fiduciary capacity. This means that they must act in your best interests at all times, honor your wishes if known, and make prudent decisions. The agent's authority is defined by the power of attorney document, which outlines the scope, limitations, and conditions under which the agent can act.
Durable vs. Non-Durable Power of Attorney
If you are creating a power of attorney as part of your estate planning strategy where a trusted family member or friend has authority to manage your finances if you become incapacitated, then you need a durable power of attorney. The attorney is granted legal authority to act on your behalf through the execution of the power of attorney document.
“Durable” simply means that your attorney-in-fact will have authority to act on your behalf during periods when you are alive but are incapacitated or incompetent. With a durable power of attorney, the attorney remains authorized to act even if the principal becomes incapacitated. In contrast, a non-durable power of attorney only gives your attorney-in-fact authority while you have mental capacity.
A non-durable power of attorney is not as common as a durable power of attorney and has limited application. You might consider a non-durable power of attorney if you are creating your power of attorney for one specific purpose. For example, you may want to give someone else authority to handle a real estate closing on your behalf when you cannot physically be present, but you do not want that person to be able to act in your stead in that capacity if your health changed. In this example, a non-durable power of attorney may make sense in that scenario. Durable powers remain effective regardless of incapacity, while springing powers only take effect under specific conditions.
Springing vs. Immediate Power of Attorney
You should also consider whether your attorney-in-fact should have immediate authority to act on your behalf, or if that power should “spring” into being only if you become incapacitated or are incompetent.
When you create a “statutory” power of attorney form in your state, in most cases the power is immediate. A statutory power of attorney form is one that is designed to comply with your state’s laws. Financial institutions in your state should recognize the statutory form and accept it when presented for use. The primary reason statutory powers of attorney are immediate and not springing is that your financial institutions can rely on the form as is, without having to ascertain your health status and verify authenticity of medical records to prove you are incapacitated or incompetent.
You could create a long-form “springing” power of attorney stipulating that your attorney-in-fact only has authority upon your incapacity or a finding that you are incompetent. However, there is a greater risk that your financial institution may be reluctant to accept and honor the power of attorney as written because they are assuming a greater risk when they have to determine if your attorney-in-fact truly has authority to act on your behalf.
It is understandable to be hesitant about granting someone an immediate power of attorney; the form could be used to fraudulently transact business in your name, or your named agent could use your funds in a manner that you would not have otherwise authorized. You can limit your risk by naming only people or professionals you believe will act appropriately and who will not abuse their authority under the power of attorney form.
Considerations When Choosing an Attorney-in-Fact or Agent
Because being granted power of attorney is potentially a big responsibility and gives your named attorney-in-fact authority over your finances, it is important to think carefully about who you name in that role.
You can name any competent adult to act as your attorney-in-fact. In many cases, people name their adult children or grandchildren as their agent(s) under a power of attorney. You could also name another relative, a trusted neighbor, or a close family friend. There are also professional fiduciaries offering attorney-in-fact services for fees. If you do not have a trusted family member or friend you want to name in that role, consider reaching out to the trust department of a local bank or searching for a professional fiduciary in your community.
You can also name one or more successor attorneys-in-fact to act if your first-named agent dies, resigns, or is otherwise unable to serve. Naming one or more successors when you create your power of attorney can eliminate the need to have to update it later if something happens to the person you named as your primary attorney-in-fact. In addition, you may appoint another agent as an alternate to step in if your primary agent is unable or unwilling to serve.
If you want to name more than one agent who will have authority to act at the same time, you will need to decide whether you want your attorneys-in-fact to be able to act independently or jointly. Keep in mind that if you require your attorneys-in-fact to act jointly, it can create logistical challenges if one of them is traveling or is otherwise temporarily unavailable.
Choosing Which Powers to Grant
In many cases, when people create a power of attorney for estate planning purposes, they give their attorney(s)-in-fact broad authority over their finances. You can grant general powers that allow your agent to handle all financial matters, or you can limit the agent’s authority to specific transactions.
The transactions you can authorize may vary in your state, but commonly include the following:
-
Real property (real estate) (you can limit this to transactions for a specific parcel of property or can authorize your attorney(s)-in-fact to handle any real estate transactions for you)
-
Tangible personal property
-
Bond, share, and commodity transactions
-
Banking transactions
-
Bank account management
-
Business operating transactions
-
Insurance transactions
-
Beneficiary transactions
-
Gift transactions
-
Fiduciary transactions
-
Claims and litigation
-
Family maintenance
-
Benefits from military service
-
Records, reports, and statements
A financial power of attorney authorizes your agent to manage your financial powers, including handling your bank account and other assets.
You should also consider whether you want your attorney(s)-in-fact to be able to make gifts to themselves from your assets when they are serving on your behalf; in other words, whether your agents can write themselves checks from your account or transfer your assets into their own names.
Depending on your state’s laws, you may be able to limit the “gifting” authority to some of your attorneys-in-fact but not others. In other states, all of your agents have the authority or none of them do, based on how you answer the question on the form. If you do not allow gifting, this means that an agent who incurs expenses when acting on your behalf will not be able to reimburse themselves for such expenses or take compensation for their time and effort.
Making Your Power of Attorney Form Legal
After naming one or more primary and successor attorneys-in-fact, deciding whether to grant broad or limited powers, and deciding whether to create a durable or non-durable power of attorney which is springing or immediate, check your state’s legal formalities for executing a power of attorney. A valid POA must comply with state-specific requirements, including proper execution and signing.
In most states, the principal’s signature must be notarized. Some states require additional witness signatures. Your nominated attorney(s)-in-fact may also need to sign the form too, although they may not need witness or notary signatures. Some POAs take effect immediately upon signing, while others specify a specific date or event that triggers their effectiveness. It is important to use the correct POA forms to ensure the document is legally recognized.
Notifying Financial Institutions
After creating your power of attorney, it is crucial to inform all relevant financial institutions about the new attorney document. This includes providing copies of the power of attorney to your banks, credit card companies, and investment firms, so they are aware of your agent’s authority to act on your behalf. Clearly communicating the extent of your agent’s power helps prevent confusion or delays when financial decisions need to be made. Each institution may have its own process for accepting a power of attorney, so it is a good idea to check their requirements in advance. By proactively notifying these organizations, you ensure your agent can manage your financial affairs smoothly and efficiently if you become unable to do so yourself.
Amending or Revoking Your Power of Attorney
As long as you have the mental capacity to make changes, you are in control over who is authorized to act for you. A power of attorney must be created of the principal's own free will, without coercion, to be legally valid. If your wishes about who you want to act on your behalf or about what authority you want your attorney-in-fact to have change after you sign your new power of attorney, you can revoke the document.
If you choose to revoke an existing power of attorney, the revocation must meet your state’s requirements. In most cases, this means the revocation must be in writing and must clearly identify the date of the original power of attorney and the name of the person(s) whose authority you want to revoke. Notice of revocation must be provided to your attorney(s)-in-fact and to any financial institution or other provider who had a copy of the old power of attorney form.
If you do not revoke your power of attorney before the principal dies, it ends at that moment; power of attorney cannot be extended beyond your death. If you named your spouse as your attorney-in-fact and your marriage ends, your state’s laws may automatically revoke your spouse’s authority to act on your behalf.
Plan for Easy Management of Your Affairs During Incapacity
Giving someone else power of attorney over your finances can give you peace of mind knowing that a trusted agent will be able to access your funds and handle your financial obligations if you are alive but are unable to pay your own bills or otherwise manage your own affairs.
Create Your Power of Attorney Now
Creating a power of attorney is fast and easy with our power of attorney form. Simply walk through the questions and our intuitive form builder does the rest for you. Click here to create your power of attorney now.
Need a Power of Attorney?
Get started