What Is a Power of Attorney?

A power of attorney is a legal document that gives an agent of your choosing the power to act in your place. If you were ever to become mentally incapacitated, you would need a “durable” power of attorney for your finances and medical care. A durable power of attorney means the document remains in effect even if you become incapacitated and are unable to handle your own affairs. An ordinary, or “nondurable,” power of attorneys automatically ends if the person who makes it loses mental capacity.

If you have a valid power of attorney, the person you name will be legally permitted to take care of important matters for you such as pay your bills, manage your investments, and direct your medical care if you are unable to take care of these matters yourself. You may also name an entity as your agent under a power of attorney such as a bank, trust company, or a company providing professional guardianship and trust services.

It is well worth the cost and time required to set up a power of attorney. If you do not have a durable power of attorney and something happens to you, your loved ones may have to go to court and initiate a guardianship in order to handle your affairs.

In order to cover all the issues related to power of attorneys it makes sense to have two separate documents: one that addresses your financial affairs and one that addresses health care issues. You may wonder why you cannot cover finances and health care in one single power of attorney document. Technically, you could – but it is usually not a good idea. Making separate documents will keep life simpler for your agent and others.

For example, your health care documents will likely be full of personal details that your financial agent does not need to know. Likewise, your doctors do not need to be burdened with your financial information.

That being said, though you should make separate power of attorney documents for your financial affairs and your health care decisions, it may make a good deal of sense to name the same agent under both documents. If not, you must be sure to name people who will work well together.

There are various types of power of attorneys. Here are some types of power of attorneys:

  • General Power of Attorney – authorizes your Agent to act on your behalf in a variety of different situations, including handling your financial and legal affairs.
  • Special Power of Attorney – authorizes your Agent to act on your behalf in specific situations only.
  • Health Care Power of Attorney – allows you to appoint someone to make health care decisions for you if you are incapacitated.
  • “Durable” Power of Attorney – the general, special, and health care power of attorneys can all be made “durable” by adding certain text to the document. This means that the document will remain in effect or take effect if you become incapacitated.
  • Revocation of Power of Attorney – You may revoke a power of attorney by giving written notice to your agents under a power of attorney or simply execute a new power of attorney revoking all former power of attorneys.

Financial Power of Attorney

A financial power of attorney is a document that gives your agent the authority to handle financial transactions on your behalf. Some financial powers of attorney are very simple and used for single transactions, such as closing a real estate deal. The financial power of attorney can be comprehensive; it is designed to let someone else manage all of your financial affairs for you if you become incapacitated. With a durable power of attorney for finances, you can give your trusted agent as much authority over your finances as you like. The person you name is usually called your “agent” or “attorney-in-fact,” though he or she does not have to be an attorney.

Your agent can handle simple tasks such as sorting through your mail and depositing your Social Security checks, as well as more complex jobs like watching over your retirement accounts and other investments, or filing your tax returns. Your agent does not have to be a financial expert, just someone you trust completely who has a good dose of common sense. If necessary, your agent can hire professionals (paying them out of your assets) to assist them in managing your affairs.

A financial power of attorney is a good document to make for yourself, and it can also be a great blessing for your family. If you become unable to make decisions for yourself and you have not prepared a durable power of attorney, a court guardianship proceeding is probably necessary. Your spouse, closest relatives, or companion will have to petition the court to be appointed as your guardian to obtain authority over at least some of your affairs. Guardianships are expensive and time consuming with potentially private information made public through the court records.

When a Financial Power of Attorney Takes Effect

A financial power of attorney can be drafted so that it takes effect either immediately or upon your incapacity. (Many spouses have active financial power of attorneys for each other in case something happens to one of them – or if one spouse is regularly out of town.) You should specify that you want your power of attorney to be “durable.” If you do not, in most states, it will automatically end if you later become incapacitated.

You can specify that the power of attorney does not go into effect unless one or more doctors certify that you have become incapacitated. This is called a “springing” durable power of attorney. It allows you to keep control over your affairs unless and until you become incapacitated, when it springs into effect. Again, you must specify that you want your power of attorney to be “durable.” If you do not, in this case, your document will never take effect at all.

The Role of the Agent under a Power of Attorney

When you create and sign a durable power of attorney, you give another person legal authority to act on your behalf. This person is called your Agent or, in some states, your attorney-in-fact.

Commonly, people give their Agent broad powers to handle all of their finances. But you can give your Agent as much or as little power as you wish. You may want to give your Agent authority to do some or all of the following:

  • use your assets to pay your everyday expenses and those of your family
  • buy, sell, maintain, pay taxes on, and mortgage real estate and other property
  • collect Social Security, Medicare, or other government benefits
  • invest your money in stocks, bonds, and mutual funds
  • handle transactions with banks and other financial institutions
  • buy and sell insurance policies and annuities for you
  • file and pay your taxes
  • operate your small business
  • claim property you inherit or are otherwise entitled to
  • transfer property to a trust you have already created
  • hire someone to represent you in court
  • manage your retirement accounts.

The Agent is required to act in your best interests, maintain accurate records, keep your property separate from his or hers, and avoid conflicts of interest.

Making a Financial Power of Attorney

To create a legally valid durable power of attorney, you must sign the document in the presence of a Notary Public. The issues addressed in a power of attorney can be complex and it is never a good idea to draft your own power of attorney.

Some banks and brokerage companies have their own durable power of attorney forms. If you want your Agent to have an easier time with these institutions, you may need to prepare two (or more) durable power of attorneys: the form we create for you and forms provided by the institutions with which you do business.

In Washington, you must sign the document in front of a Notary Public. In some states, witnesses must also witness your signature. If your Agent will have authority to deal with your real estate, you must record a copy of the power of attorney at the office of the County Auditor or Recorder where the real estate is situated.


When a Financial Power of Attorney Ends

Your durable power of attorney automatically ends at your death. That means that you cannot give your Agent authority to handle things after your death, such as paying your debts, making funeral or burial arrangements, or transferring your property to the people who inherit it. If you want your Agent to have authority to wind up your affairs after your death, use a Will to name that person as your Personal Representative (“executor”).

Your durable power of attorney also ends if:

  • You revoke it. As long as you are mentally competent, you can revoke a durable power of attorney at any time.
  • You get a divorce. In a handful of states, if your spouse is your Agent and you divorce, your ex-spouse’s authority is automatically terminated. In other states, if you want to end your ex-spouse’s authority, you have to revoke your existing power of attorney. In any case, it is wise to make a new document as soon as you file for divorce or include language in the document that automatically revokes your spouse’s authority upon the filing of a divorce or legal separation.
  • A court invalidates your document. It is rare, but a court may declare your document invalid if it concludes that you were not mentally competent when you signed it, or that you were the victim of fraud or undue influence.
  • No Agent is available. A power of attorney is no longer effective if the Agent is unwilling or unavailable to act. To avoid this problem, you can name alternate Agents in your document.

Health Care Power of Attorney

A Health Care Power of Attorney is a document that allows you to designate a person (an “Agent”) who will have the authority to make health care decisions on your behalf if you are unconscious, incapacitated, or otherwise unable to make such decisions. In many states you can also express your wishes regarding whether you wish to receive “life-sustaining procedures” if you become permanently comatose or terminally ill. This will help your Agent to know your wishes as he or she makes decisions for you. Even if you do include this in the document, you should still discuss the Health Care Power of Attorney with the Agent, expressing your wishes, values and preferences regarding health care.

Your health care agent will work with your doctors and other health care providers to make sure you get the kind of medical care you wish to receive. When arranging your care, your agent is legally bound to follow your treatment preferences to the extent that he or she knows about them.

A Health Care Power of Attorney is different from a Living Will because it allows you to appoint someone to make health care decisions for you. A Living Will only allows you to express your wishes concerning life-sustaining procedures.

Both Living Wills and Health Care Power of Attorneys are considered “Advance Health Care Directives” because you are giving instructions on what you would want to happen in the event that you become unable to make health care decisions in the future. Some states also have a specific “Advance Health Care Directive” document that combines elements of a Health Care Power of Attorney and a Living Will.

Even if you have executed a Health Care Power of Attorney, you still have the right to give medical directions to physicians and other health care providers as long as you are able to do so. This document only becomes effective when you do not have the capacity to give, withdraw or withhold informed consent regarding your health care.