Most of us don’t know what a power of attorney is until we need it. But we should all have at one so decisions don’t need to be made in haste when an emergency happens — or worse by the courts who don’t know your specific wishes or desires.
My parents had a POA far sooner than they needed one. They instilled in me the importance of proper planning. But, when my mother got sick, although she had a power of attorney, it was not sufficient for me to handle a specific medical lawsuit. At that moment I learned a great deal about POAs and the different types and situations when more might be needed.
So should you have a power of attorney? Read on to find out how to be prepared.
WHAT IS A POWER OF ATTORNEY (POA)?
A power of attorney (POA) is a document that gives an agent the right to act on behalf of someone else.
It’s important to note that the POA is by state. If you have POA for your uncle in North Carolina and he moves to Florida, the POA is invalid. Some states require annual recertification. Also, POAs die with the person. If you have POA for Aunt Caroline and she passes away, you no longer have any legal right to handle her financial or other affairs, unless granted in a will. Finally, Social Security is a federal, not a state, program. As such, it does not recognize POAs. You must become a representative payee to handle Social Security on behalf of someone else.
Five different types grant varying levels of authority. The five types of POA offer different types of protection.
- Durable Power of Attorney (DPOA) vs. Non-Durable Power of Attorney
- Unless stated otherwise, a POA becomes effective immediately after it is signed (and notarized). If it is durable, the agent will continue to have authority to make decisions even if you become incapacitated, such as by having dementia or going into a coma. If it is a non-durable POA, it simply means that the agent loses authority if you become incapacitated. As we said above, all POAs end with the person’s death. The person can also rescind a POA with a revocation form, as long as he or she is competent. Most of the POAs listed below can be made durable.
- Medical Power of Attorney
- Also known as an advance directive, a medical power of attorney allows an agent to make medical decisions for you if you cannot make them yourself. These include surgical procedures, organ donation, choice of health care facilities, and a broad range of medical treatment. Your agent will also make sure health providers carry out wishes you have specified in your do not resuscitate (DNR) form or living will.
- General Power of Attorney
- A general POA grants broad powers. The agent can make decisions for you regarding business, financial, legal matters and real estate. Your agent will be able to pay bills, enter into contracts, buy or sell property and manage banking. Because it is so extensive in nature, it is usually used for a short period, such as when you will be traveling extensively where you cannot be reached.
- Limited, or Special, Power of Attorney
- This gives an agent the power to act on your behalf just like a general POA, but it is limited to specific purposes. You may elect to grant someone the power to cash checks for you, for example, but not access or otherwise manage your finances. It’s possible to create any number of limited POAs for different agents. They will expire once a specific task is done, or at the time specified on the document.
- Springing, or Conditional, Power of Attorney
- This type of POA only goes into effect in the event of a medical condition (usually incapacitation) or other trigger specified in the POA. A soldier might create a springing power of attorney that is only in effect when he or she is deployed overseas. It can end when the person becomes incapacitated or at a specified date. As with every type of POA, it will also end upon death.
HOW TO PROTECT YOURSELF WITH A POWER OF ATTORNEY
The following advice for protecting yourself against POA abuse comes from the Consumer Financial Protection Bureau:
Trust, but verify. Only appoint someone you really trust and make sure they know your wishes and preferences. You can require in your POA that your agent regularly reports to another person on the financial transactions he or she makes on your behalf.
Tell other friends, family members and financial advisers about your POA so they can look out for you.
Remember that POA designations are not written in stone — you can change them. If you decide that your agent isn’t the best person to handle your finances, you can revoke (cancel) your POA.
Beware of someone who wants to help you out by handling your finances and be your new “best friend.” If an offer of help seems too good to be true, it probably is.
When selecting a POA, you should carefully weigh the benefit of choosing a family member, friend, or a third-party agent (such as an attorney or financial professional). They all come with pros and cons so don’t rush the decision but think carefully about who really in the long run will look out for your best interest.
When drawing up a POA, it’s important to be very careful and specific about the agent’s activities and duties. Financial institutions and brokers will look for specific language, and if it’s not there, it can cause some big headaches. One financial agent listed on a client’s POA was unable to access her CDs because the bank had erroneously listed them as being in a trust. If a trust is involved, the trustee or successor trustee must be the one to make financial changes. These sorts of issues can get thorny and require trips in front of a judge when the person is incapacitated.
CONSERVATORSHIP OR GUARDIANSHIP?
If you fail to have a POA (and in other circumstances) and become unable to handle your own financial affairs, the court can appoint a steward for you. This is most often known as conservatorship, while guardianship usually (but not always) refers to the steward for a child or incompetent adult. A conservator may be responsible for the individual, their property or both. However, the terms for these duties vary substantially by state, and some states only use one term. What doesn’t vary is the expense, which can be substantial.
Also, what the steward decides, goes, regardless of what the person he or she is acting for may want. If you need any type of proof of this just look at what happened to the pop star Brittney Spears and the 13 years she was under conservatorship by the courts. She finally was able to break free from it, but not after 13 stressful and painful years that ultimately destroyed her relationship with her entire family.
When someone can no longer make decisions, it can get messy quickly if there are disagreements over who should have the power of attorney, or what actions that person is taking. Worse, is if someone becomes incapacitated without a financial power of attorney, the courts may appoint a conservator to make decisions. This is a lengthy and expensive legal proceeding over which your family will have no control. Everyone, even a healthy 18-year-old, should have a durable financial power of attorney in effect.
Even though my mother had a POA I was still needed to become her legal guardian so that I could enter into a lawsuit on her behalf. One would not have thought it was necessary at first glance of her POA as it was very thorough and even indicated that I could enter into a suit on her behalf. But because of the nature of the suit, we were advised to seek guardianship.
When in doubt always seek the counsel of an attorney you trust.
CONCLUSION
A Power of Attorney is an important and useful tool in ensuring that your wishes and desires are considered by someone you know and trust and have fully expressed those opinions too. Seek out a good attorney to help you draft a POA and give careful consideration to who you will appoint in the event that you can no longer speak for yourself. In doing so, you ensure your affairs are handled smoothly.
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