Understanding the Types of Power of Attorney
How much do you know about the different types of power of attorney? It’s useful to have a basic understanding regarding your choices.
Read more for the details.
Introduction
A Power of Attorney (POA) is a legal document that grants a specific person (called the “agent”) the right to represent another party (the “principal”) in private affairs and/or legal matters. These rights may be limited, all-encompassing, temporary, or permanent – the specifics depend on which type of POA you choose.
We’ll provide a breakdown of these options, and explain how you can tell if each is the right choice for your situation, in this short guide.
Why Have a POA?
There are many reasons why someone might consider creating a POA. The most common motivator is concerns about future incapacity. An older individual who is diagnosed with early-onset dementia, for example, may decide to create a POA granting their spouse the right to act on their behalf before they lose function.
But incapacity is not the only situation where a POA is useful. In fact, this type of legal contract can be ideal in virtually any situation where someone wants to ensure that a third party has the legal right to transact on their behalf.
● Military servicemen and women may create a POA prior to deploying overseas. They may wish to grant someone basic rights, such as the ability to handle day-to-day bank transactions on their behalf. Or, they may simply want someone to handle their affairs if they become incapacitated instead.
● Young people who travel may seek out the same kind of arrangement for similar reasons. Empowering someone to handle legal and financial decisions can make it easier to handle issues, should they arise, without flying home.
● Someone who is about to have a complex surgery may wish to create a temporary POA with a trusted friend who can make decisions for them, should complications occur. They may only give the individual the right to step in if certain conditions are met (e.g., total incapacitation).
● Couples may assign POA to each other simply for peace of mind, even if they have no reason to fear incapacitation. This is common in situations where children are concerned, as a POA can be granted the right to make decisions about custody. Like any other element of estate planning, it is often better to handle these affairs before a problem occurs.
Note that an individual can only agree to a POA (or, in fact, any other legally-binding contract) if they are competent and of sound mind. For this reason, it is extremely important to create a POA before issues arise, if one is desired, rather than waiting until incapacity, inaccessibility, or incompetence occurs.
General POA
A General Power of Attorney is the most exhaustive and far-reaching form of POA available in the United States. It allows the agent to act on behalf of the principal in virtually any matter of a personal, legal, or financial nature.
This typically includes:
● Tax concerns
● Day-to-day banking
● Real estate transactions
● Entering or dissolving contracts
● Paying bills or managing services (e.g., utilities)
The principal, of course, retains the right to allow as many or as few controls as they see fit. He or she might opt to allow a third party to handle day-to-day banking, but exclude real estate transactions. Or, they might grant the agent the right to pay bills and cancel services, but disallow them the right to enter new contracts for them.
Due to the fact that a General POA provides such an extensive list of controls, the law often limits their use to very temporary or specific scenarios. Essentially, the principal cannot agree to any arrangement that invalidates their inalienable rights as an American citizen. Furthermore, the principal retains the right to change their mind and revoke the POA at any time. This helps to limit abuse of the system.
It is also vital to note that a general POA becomes inactive at the moment incapacitation occurs. For this reason, it may be a poor choice for individuals going through a serious illness and/or those who anticipate future incompetence.
Medical POA
A Medical POA is a specific type of contract that only allows the agent to make medical decisions on behalf of the principal. It is typically created in advance of a crisis (e.g., before illness or surgery), but only becomes active in the event of incapacitation (whether temporary or permanent).
Like a living will, a medical POA can grant peace of mind. It ensures that your affairs, including whether or not to continue life-saving care, will be handled according to your wishes, no matter how long you are incapacitated. But that does not mean these two legally-binding contracts are the same.
An agent is a living, breathing person – and that means they can adjust their decisions depending on what they truly believe is in your best interests. A living will, on the other hand, is predesignated; it does not change. This isn’t always ideal due to the rapidly-changing nature of most health issues.
Limited POA
A Limited POA is a type of legal document that grants the agent the right to act on behalf of the principal – but only in very specific ways. This is in direct contrast to a General POA, which often grants control over virtually all matters unless otherwise specified.
By limiting the scope of controls, the principal maintains more control over their own affairs. This is the case even if they become incapacitated along the way.
The limited nature of this POA type may make ideal or inappropriate in certain situations. For example, a limited POA may be an excellent choice for someone who travels frequently. However, it may not be robust enough for people who anticipate permanent incapacitation in the near future (e.g., Alzheimer’s Disease).
Springing POA
You may have heard of the term “springing power of attorney” in your travels, especially if you’ve been researching the subject for some time. This term refers not to how the agent can act on your behalf, but when the POA becomes effective.
To be more specific, a Springing POA only becomes active if and when certain events take place. For example, the principal might opt to include a clause that states the agent can only act on their behalf if they become incapacitated. Or, they may specify that the POA can only step in if no other next-of-kin is available to help.
Durable POA
A Durable POA is the exact opposite of a Springing POA. Rather than becoming active only when a certain event takes place, such as incapacitation, the contract becomes valid the moment both parties sign it. Controls remain in place permanently or until the principal dies, regardless of whether incapacitation occurs.
Durable POAs can be invaluable when the principal is a parent suffering from dementia, an adult child suffering from mental illness, or even just a friend facing end-of-life care. They are especially useful when someone’s mental status is unclear or changes frequently – this is often the case with Alzheimer’s Disease.
Conclusion
Have questions about the types of power of attorney? An estate planning attorney can help you explore your options and ensure your rights are protected.
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