A power of attorney is a document that names someone who can make decisions on your behalf. If something were to happen to you, this is the person who can make financial and other decisions in your absence.
There are a number of different types of power of attorney (POA), which vary according to how much control they grant the agent. They can also differ by how long they last and when they take effect.
Durable Power of Attorney
“Durable” is an umbrella term that applies to most POA documents. These are typically used in cases where you are concerned about becoming incapacitated in the future. With durable power of attorney, the agent’s power continues indefinitely after the point when you’re legally not able to make your own decisions.
Depending on your state’s laws, you may not need to inform your agent that they’re named in your durable power of attorney at all. (Though it’s still a good idea!) It’s also important to note that you’re not giving up control over your finances before you’re incapacitated. The agent has legal access as soon as the POA takes effect, but you can revoke their power at any time or for any reason. And in the meantime, you won’t lose any of your own access or control over your accounts.
Your agent has a fiduciary duty to act in your best interests, not theirs. Your bank account isn’t their ATM by virtue of having access. If a bank suspects an agent of abusing their power, or if the durable power of attorney is “stale” (i.e. hasn’t been re-signed in the last few years), the bank can turn an agent away.
You (or someone who’s concerned about your financial welfare) can also take your POA agent to court or contact state adult protective services if they suspect that the agent is misusing your funds. A court can make the agent return misused money or other assets, and depending on the misuse, there may even be grounds for criminal prosecution.
Non-Durable Power of Attorney
A non-durable power of attorney document, on the other hand, isn’t a “forever” thing, and it’s not intended for cases of incapacitation. In fact, it isn’t actually valid if you’re legally incompetent.
Rather, a non-durable POA is used when you need someone to act on your behalf for a specific event when you can’t be present yourself. If you’re taking a job across the country, for example, an agent named under non-durable POA can sign documents to get you an apartment in the new city.
Non-durable POA takes effect as soon as all documents are signed, and ends when:
The specific transaction you outlined in the non-durable power of attorney document is complete, or the expiration date named in the document passes
You revoke the document for any reason
You’re legally incapacitated
The reason a non-durable POA ends if you’re incapacitated is that this document is almost always meant to accomplish a very specific objective (like signing a legal agreement for you when you can’t be there in person).
If you get in a car crash and end up in a coma, whatever plans you had—such as purchasing real estate or selling your business—may not be wise in light of this new emergency. Think of it as the financial version of lending a neighbor a house key while you’re on vacation: You’re OK with them accessing your place to water plants or feed the cat. But if anything happened to you, you might not want that permission to continue.
Therefore, it’s actually a sort of security feature for you that a non-durable POA expires if you become incapacitated. That way, someone who was authorized to do one thing doesn’t end up with indefinite access to your account.
An immediate power of attorney document takes effect as soon as it’s signed. That said, most people don’t expect to use it until they’re legally incompetent, such as after a stroke that impairs cognitive ability.
Depending on your state, the agent may or may not need to sign the document. You also need to renew your POA according to state guidelines by re-signing the document (every one to three years is pretty common).
“The agent you name under the POA isn’t supposed to go out and start using it unless and until the principal becomes disabled,” says Evan H. Farr, certified elder law attorney. “The reality is, if you give someone immediate POA and they go off and start doing stuff, you’re going to find out right away.”
An agent also has to act in your best interest. This person can’t “decide” that what you really wanted was to fund their round-the-world luxury tour instead of paying for long-term care for you, for example.
General Power of Attorney vs. Limited Power of Attorney
You can write a POA in two forms: general or limited.
A general power of attorney allows the agent to make a wide range of decisions. This is your best option if you want to maximize the person’s freedom to handle your assets and manage your care.
A limited power of attorney restricts the agent’s power to particular assets. For example, you might grant someone access to a bank account, but not your house or investment portfolio.
In either case, this is a highly technical legal document. DIY options exist online, but your best bet is to work with an experienced elder care law attorney or another attorney specializing in estate planning. That holds true whether you’re looking for a general power of attorney or a limited power of attorney.
Springing Power of Attorney
Springing power of attorney is similar to immediate POA in that it works when you’re incapacitated. The difference is that it only “springs” into effect once you meet conditions you set to declare you legally incompetent.
“Most estate planning attorneys don’t use springing POAs because they create more problems than they’re designed to solve,” says Farr. For example, let’s say that you define the “springing” condition as your being deemed incompetent by two physicians. In a case like that, the document is useless if for whatever reason you refuse to show up for a doctor’s visit.
Some health conditions, including dementia, involve good days and bad days. That can make it harder for doctors to make a definitive call on a person’s cognitive ability (and therefore harder to definitively “spring” the POA into action). If the springing conditions are too vague, a court might need to get involved to rule on the principal’s status.
Remember, you should choose someone you trust to act as your agent. If you’re considering a springing power of attorney because you don’t want to give this person power until it’s urgent, your hesitation could be a sign. Do you not fully trust this person? If so, you might consider naming someone else.
Beyond the Money: Medical Power of Attorney
Consider writing separate POA documents for your health and your finances.
“There’s no benefit to combining them,” says Farr. “The banks don’t need to see your healthcare wishes, and the hospital doesn’t need to see your financial wishes. Even if you have the same person as your agent, you may choose different alternates” for your medical power of attorney and your financial one.
Medical POA is part of a larger document called an advance medical directive, which includes three main components:
Medical POA: Who will make decisions on your behalf?
Near-death directive: What are your wishes for care (or when to stop treatment) in case of severe illness or coma?
After-death directive: What you want done with your body (organ donation, cremation vs. burial and so on)?
It may not be the most fun conversation to plan for all the worst case scenarios life might bring, but planning ahead of time can help spare your loved ones the stress, doubt and potential squabbles about what you would want. Instead, they can focus on taking the best care of your, and their, needs.
Were you named someone’s POA? Here’s what you should ask.
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