Power of Attorney: What You Need To Know

We don’t like to think about the possibility of being in a critical accident or developing an incapacitating disease. Most of us won’t have to deal with those issues – but some will. And when that happens, someone will have to manage your finances and, in some cases, decisions surrounding your health care. To cover those cases, you can use a “power of attorney.” That’s a legal document that gives another person the ability to act on your behalf for some or all of your legal, financial, and health issues.

What A Power of Attorney Does

When you sign a power of attorney, you give another person the right to make some or all legal decisions on your behalf. You’re the “principal” and the person you assign as your power of attorney is called the “agent” or “attorney-in-fact.”

There are two main types of power of attorney: specific and general. A specific power of attorney gives your agent the power to handle a specific task – selling your home, for example, or managing your finances. A general power of attorney gives your agent the power to make any legal decisions or perform any legal acts on your behalf.

In addition to being general or specific, a power of attorney may be durable or non-durable. A durable power of attorney means your agent can continue to make decisions on your behalf even if you’re incapacitated or mentally incompetent. A non-durable power of attorney ends when you become incapacitated or mentally incompetent.

Many people choose to split their affairs among different powers of attorney. For example, it’s common to set up one power of attorney for your health care decisions and a separate one for your finances. You may not want your financial power of attorney to have access to all of your personal medical information, or you may want to choose two people that have some experience in those different areas.

Your Rights

You put a lot of trust in your power of attorney – your health and your finances (and potentially your family’s financial security) are in their hands. And with control of your health and finances, your agent is in a position to take advantage of you. So, the laws surrounding powers of attorney are very strict.

Your agent legally owes you a “fiduciary duty.” That’s a legal term that means they have to put your interests before their own. Generally, they have to make the decisions that you would have made if you were able. They can’t make decisions that benefit themselves and hurt you. They also can’t make decisions that go against the goals and expectations you set out in the power of attorney. That’s considered abuse of the power of attorney and is illegal.

In addition to abusing their power as a legitimate agent, some people will convince elderly or sick relatives or friends to give them power of attorney. They may then use that power to give themselves money or assets, despite the wishes of the principal. This is also an abuse of the power of attorney.

When someone abuses their power of attorney, the principal or their family can sue the agent to recover the money or property lost due to the abuse. In some cases, there may also be criminal charges for fraud, exploitation, theft, and more.

Choosing A Power of Attorney

Your agent has a lot of power, so you need to think carefully about who will best serve your needs. Many people choose their parents, siblings, or children. Some also choose close friends. Some choose their accountants to manage their finances. Whoever you choose, make sure they’re someone you truly trust. Sit down with them and explain that you’re giving them power of attorney and make sure they understand the expectations that come with that role. You don’t want it to come as surprise!

Creating A Power of Attorney

In order to create a power of attorney, you must be legally capable of entering a contract. In general, that means you have to be at least 18 and mentally competent. A power of attorney must be set down in writing and either a notary public or two adults have to witness and sign the contract.

As we mentioned above, you can choose whether your power of attorney will be specific or general and durable or non-durable. In addition, you can limit your power of attorney to specific roles or set guidelines for what they can and can’t do.

You can modify your power of attorney as long as you’re still legally capable of entering a contract. You can also put terms into the power of attorney contract that will trigger or allow for modifications. For example, you may put in a clause that says you want your financial power of attorney to turn over your assets to your children when they turn 18. If you’re mentally incompetent or incapacitated, the court may modify or revoke your power of attorney in order to uphold your wishes.

There are a number of websites and services that can help you create a basic power of attorney. Depending on your health and financial situation, that may be adequate for your needs. However, an experienced estate planning attorney can help you make sure you and your family are covered by your power of attorney. They can help you make your wishes and expectations clear and set up provisions to deal with unexpected circumstances.

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