Power of Attorney
Power of Attorney (POA): Meaning, Types, and How and Why to Set One Up
What Is a Power of Attorney (POA)?
The term power of attorney (POA) refers to a legal authorization that gives a designated person the power to act for someone else. As such, a POA gives the agent or attorney-in-fact the authority to act on behalf of the principal. The agent may be given broad or limited authority to make decisions about the principal’s property, finances, investments, or medical care.
There are two main types of POAs, financial and health care—both of which provide the attorney-in-fact with general or limited powers.
- A power of attorney is a legal document that gives one person the power to act for another person.
- The person who receives the authority is the agent or attorney-in-fact while the subject of the POA is the principal.
- The agent can have broad legal authority or limited authority to make decisions about the principal’s property, finances, or medical care.
- The POA is often used when the principal can’t be present to sign necessary legal documents for a financial transaction.
- A durable power of attorney remains in effect if the principal becomes ill or disabled and cannot act personally.
How a Power of Attorney (POA) Works
A power of attorney is a legal document that involves the agent or attorney-in-fact, and the principal. It is used in the event of a principal’s temporary or permanent illness or disability, or when they can’t sign necessary documents. The principal must choose a POA who they trust to handle their affairs for them.1 Documents can be obtained online or through a lawyer. Both parties must sign the paperwork. A third party is usually required to witness it.
Most POA documents authorize the agent to represent the principal in all property and financial matters as long as the principal’s mental state of mind is good. If the principal becomes incapable of making decisions for themselves, the agreement automatically ends.2
A power of attorney can end for several reasons, such as when the principal revokes the agreement or dies, when a court invalidates it, or when the agent can no longer carry out the responsibilities outlined. In the case of a married couple, the authorization may be invalidated if the principal and the agent divorce.
There are many types of powers of attorney. A durable POA takes effect when the document is signed while a springing power of attorney comes into effect only if and when the principal becomes incapacitated. A power of attorney may also be limited to medical matters, enabling the agent to make crucial decisions on behalf of an incapacitated person.3
A power of attorney for use in case of need might be considered by anyone planning for unexpected incapacitation or long-term care, no matter how remote such events appear to be. It might also be needed for someone expecting to be away from home and difficult to reach for some time.
A person who wants the power of attorney to remain in effect after the person’s health deteriorates would need to sign a durable power of attorney (DPOA).
Making a power of attorney durable means that it remains in force even if the person they are representing becomes mentally or physically incapacitated. An example of this would be if the principal goes into a coma or suffers amnesia. A durable power of attorney, however, does not persist after the client’s death. If the power of attorney is not designated as durable, and the client becomes mentally incapacitated, the authority is voided.3
There are many good reasons to make a power of attorney, as it ensures that someone will look after your financial affairs if you become incapacitated. You should choose a trusted family member, a proven friend, or a reputable and honest professional.
Remember, however, that signing a power of attorney that grants broad authority to an agent is very much like signing a blank check—so make sure you choose wisely and understand the laws that apply to the document