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I’m sure you’ve heard the term Power of Attorney (POA) before, but did you know that not all POAs are created equal. There are different types of POAs, which grant different powers to the “attorney-in-fact.”
What is a Power of Attorney?
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.
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.
Understanding the Roles in a POA
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.
Durable vs. Non-Durable POA
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.
“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. 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 specific, one-time-only real estate closing on your behalf when you cannot physically be present, but you do not want that person to act in your place if your health changed. In this example, a non-durable power of attorney makes the most sense in that scenario.
Springing vs. Immediate POA
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 the 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.
How to Choose an Attorney-in-Fact
It is prudent to carefully consider your options in choosing your agent or attorney-in-fact. The role entails an enormous responsibility and the person should understand the gravity of the situation.
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.
If you want to name two or more people who will have the 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. However, you could instead choose to limit your agent’s powers to one or more specific types of transactions.
The transactions you can authorize may vary, but commonly include the following (not an exhaustive list):
- 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)
- Banking transactions
- Insurance transactions
- Claims and litigation
- Benefits from military service
- Fiduciary transactions
- Family maintenance
- Tangible personal property
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. Contact an attorney to draft your POA and explain how to revoke the power, if and when, necessary.
I built my law practice on the premise of being a life raft in a sea of sharks. I want to be an advocate for those that have been wronged and are too intimidated to seek help. My firm is here to explore your options, guide you through your legal journey, and give you that safe space to ask questions! There’s no such thing as a stupid question…Only the ones you don’t ask. So, my question to my clients is not “do you have any questions?” But rather “what questions do you have?”
As always, the Kazi Law Firm is standing by to help you in your time of need. Don’t hesitate to contact us today. We specialize in real estate law, landlord-tenant disputes, immigration, and wills & estate planning. Family is at the core of our practice. Just as we treat our family with respect and understanding, we treat yours. Come join the Kazi Law Firm family today!
Why swim alone in shark-infested waters when you don’t need to?
