Understanding the Different Types of Power of Attorney: Which Do I Need?

If you have dealt with different financial institutions and or financial transactions, you may have come across the term “Power of Attorney” or “POA”. But what does a power of attorney do?  You should fully understand how these documents work to ensure you do not relinquish rights you don’t intend to.  Just as important, you want to make sure that the documents are valid when you need them to address your issues.  Let’s dive into this important legal document and understand what it can do. 

A power of attorney is a legal document that empowers a trusted individual, called the agent or attorney-in-fact, to act on your behalf in various situations. It’s a crucial tool for estate planning, ensuring your wishes are carried out even if you cannot make decisions yourself due to illness, travel, or other reasons. There are different POAs available in the United States, each offering varying degrees of control and remaining valid under specific circumstances. Understanding these distinctions is essential when choosing the POA that best suits your needs.

1. What Is a Durable Power of Attorney, and Why Is It Important?

The concept of durability is critical when choosing a power of attorney. A durable power of attorney ensures your agent’s authority remains in effect even if you become incapacitated due to illness, injury, or cognitive decline. This provides invaluable continuity in managing your affairs during a vulnerable time. In contrast, a non-durable power of attorney automatically terminates at your incapacitation, potentially creating a gap in decision-making and requiring court intervention to appoint a guardian. Essentially, a durable POA allows your chosen agent to act on your behalf when needed.

2. General Power of Attorney and Its Broad Authority

A general POA grants your chosen agent, often a trusted family member or close friend, a wide range of authority to act on your behalf in various legal matters or make financial decisions. This broad scope of power encompasses a significant portion of your estate plan. Imagine it as a master key that unlocks a vast array of doors. Your agent, wielding this key, could manage your bank accounts (paying bills, making withdrawals), handle real estate transactions (buying or selling property), navigate investments, and even make healthcare decisions in accordance with your wishes (if healthcare provisions are included in the POA). This comprehensive authorization ensures your affairs are handled seamlessly if you’re temporarily or permanently unable to do so yourself due to travel, illness, or incapacity. However, it’s crucial to point out the sweeping power of the general POA.  Unlike the general approach, a limited POA empowers your agent to address a specific task or situation, offering greater control over their actions. Choosing between a general and limited POA depends on your specific needs and the level of control you wish to maintain.

3. The Limited Power of Attorney: Specific Powers for Finite Tasks

Beyond the general and specific POAs, a limited POA provides a highly focused approach. It grants your agent the authority to make decisions on specific, well-defined tasks on your behalf. This allows you to delegate a particular action, like selling a property or managing a specific investment account, without granting broader control over your affairs. Limited POAs are advantageous in various situations. Perhaps you’re traveling abroad and need someone to manage bill payments, or you want a trusted friend to oversee the sale of a car you no longer need. This targeted approach ensures your agent can complete the designated task efficiently while safeguarding your overall control over your assets and decisions.

A special note is that most financial institutions, such as your bank or brokerage account, have POA forms for documents for their clients.  However, the authority is only limited to that institution. You would need to select the kind of power to grant and they may not be durable.  It is important for you to find out the difference between a durable POA vs a bank’s POA to make sure that your agent’s authority would be valid if you were incapacitated. 

4. Springing Power of Attorney: Taking Effect Upon Incapacitation

Unlike traditional POAs that take effect immediately upon signing, a springing power of attorney remains dormant until a specific future event triggers its activation. This event typically centers on your incapacity to manage your affairs, often determined by a doctor’s evaluation. Imagine this POA as a “sleeper agent” within your estate plan, ready to spring into action only when necessary. This differentiates it from general or specific POAs that become immediately operational. The criteria for activating a springing POA are usually outlined within the document itself. It might reference a medical diagnosis, a court order declaring incapacity, or even the inability to perform a set number of daily activities. 

5. Choosing Between Medical and Living Will

A medical power of attorney (also known as a healthcare proxy or durable POA for healthcare), focuses solely on healthcare and medical decisions. This crucial document allows you to designate a trusted individual, called a healthcare agent, to make medical choices on your behalf if you become incapacitated due to illness, injury, or unconsciousness.  You are still relying on the medical POA to carry out your wishes and allow them to authorize treatments, consult with doctors, and make crucial choices that respect your medical wishes. The final decision lies with the POA. 

This is often confused with the Living Will, which outlines your specific wishes for end-of-life care. It expresses your preferences regarding life-prolonging measures, such as artificial respiration or tube feeding, in situations where you are terminally ill or permanently unconscious. A living will is a statement of your desires, but it doesn’t appoint someone to make decisions.

Key Steps and Legal Requirements

Once you have selected the type of POA you would need and created your power of attorney document, you must ensure it is valuable and enforceable by following your state’s requirements.  Estate laws are regulated by each state, and you may need to review/update your documents if you move across state lines. Moreover, most states will require witnesses to your signature while others may require your signature to be notarized.