Whether for yourself or a loved one you may need to one day take care of, it is never too early to create a power of attorney (POA). A POA is an important life care planning tool that can help ease your mind about the future. This article helps older adults and their family caregivers understand the different types of POA, what each one does, and how to decide which one is most appropriate in different life and care scenarios.
What is a power of attorney?
A power of attorney is a legal document in which one person, as the principal, gives another person, the agent, permission to make decisions on their behalf. When someone decides to create a POA, they can decide the types of decisions the agent can make, whether the document is temporary or permanent, and whether it takes effect immediately upon signing or will become effective at a later date. Let’s take a look at these decisions next.
A POA can be broad or specific in scope
Power of attorney documents can be broad or limited to a specific circumstance. For example, a principal may grant an agent the power to make all health care decisions on their behalf for the rest of the principal’s life (broad) or grant powers limited to a single real estate transaction (specific).
A POA can be temporary or permanent
A power of attorney can also be temporary or permanent. A permanent or durable power of attorney is different from an ordinary POA because it stays in effect after the principal is incapacitated, or no longer able to make decisions for themself.
Ordinary powers of attorney expire when the principal becomes incapacitated. Ordinary powers of attorney are useful for situations where the principal may be unable to handle or have difficulty handling their affairs for a temporary period of time, such as while being deployed overseas.
This type of power of attorney expires upon incapacitation of the principal because the intent was only to grant temporary agency; if the POA continued in perpetuity after the principal became incapacitated, this would be contrary to the goal of the ordinary power of attorney and exposes the principal to potential financial fraud or abuse by the agent.
A POA can be immediate or triggered in the future
A power of attorney may become effective immediately upon signing or at a later time. The latter is called a springing power of attorney because the POA springs into effect only if and when a specific event happens.
A typical situation when a springing power of attorney is useful is when a parent is diagnosed with Alzheimer’s. In this case, the POA springs into effect when a doctor determines the parent is no longer able to make rational decisions for themself.
Who can be my power of attorney?
There are many benefits to selecting your own power of attorney. The two greatest benefits are trust and privacy. If you do not have a POA and there comes a time when you are unable to make decisions for yourself, the court may appoint a guardian or conservator for you. The guardian or conservator may be a stranger who is unfamiliar with your life story and your unique needs. Additionally, you may be subject to a public court proceeding to determine your need for a guardian or conservator.
On the other hand, choosing your own agent is a personal and private decision. Despite what the name implies, the person you grant your power of attorney to does not have to be an attorney. In fact, most people choose an immediate family member or close friend. You may also designate more than one person as coagents or successor agents. For example, it is common for parents to name their children as successor agents in case one child is unable or unwilling to be the agent.
When does a POA end?
All powers of attorney automatically end upon the death of the principal, but many end sooner. Some are limited in time at the outset. These are called ordinary powers of attorney and are more commonly used in financial situations such as selling a particular property. They may be used in medical situations when an individual is temporarily incapacitated but does not expect to be permanently incapacitated, such as while undergoing a complex surgery. On the other hand, durable POAs are permanent until the death of the principal.
Most POAs may be revoked or canceled by the principal, even durable powers of attorney. Durable powers of attorney may be revoked by the principal after the principal is deemed by a doctor to no longer be incapacitated.
State law varies on the legal ways to revoke or cancel a POA, but typically, it must be revoked in writing or by physically destroying the document. In North Carolina, for example, revocation of a POA must be notarized, whereas in Wisconsin, revocation of a POA does not require notarization (although it is highly encouraged).
Types of power of attorney
Power of attorney decisions can generally be divided into two categories: financial and medical.
Financial power of attorney
A financial power of attorney, sometimes called a power of attorney for property, grants the agent financial decision-making power for the principal. This power can be broad or limited in time and scope.
A broad financial POA is beneficial in situations where, due to a disability, someone may need help with their bills, paying taxes, or managing their Social Security or other benefits.
A limited financial POA is useful in situations where help is only needed for a short period or for a particular transaction. For example, if someone knows they will be overseas during tax season, they may want to designate an agent to file their taxes on their behalf to ensure timely submission.
Health care power of attorney
A health care power of attorney, also referred to as a health care surrogate or health care proxy, allows the agent to make medical decisions on behalf of the principal when the principal is incapacitated or otherwise unable to communicate their health care wishes.
A health care POA grants broad power to the agent, so it is important to choose an agent before it is needed. Should you become incapacitated without a health care surrogate, one will be appointed for you in accordance with your state’s applicable laws. For example, in Illinois, if you have not designated a POA, a court-appointed personal guardian will be designated your health care surrogate before your spouse or children would be.
A note on advance directives
While advance directives are not powers of attorney, these medical documents complement health care powers of attorney. When a person creates a health care power of attorney to designate who can make medical decisions for them, advance directives guide health care providers as to what medical decisions the principal wants or does not want. Advance directive documents are helpful to have so the power of attorney agent can follow the principal’s wishes.
Advance directives are an important complement to health care powers of attorney to ensure a full and complete life care plan. The common types of advance directives are:
- Living wills, which are documents that generally outline to health care providers the life-prolonging procedures, such as intubation, the principal consents to having.
- Physician’s order for life-sustaining treatment (POLST), which lists specific medical orders for health care providers to follow during a medical emergency.
- Do-not-resuscitate (DNR) order, which specifically tells health care providers not to use CPR to resuscitate the individual during a medical emergency.
While the general concepts of power of attorney are universal, there are small nuances in the laws of each state. To simplify the process of preparing a power of attorney, most states, as well as the IRS, offer fillable forms that comply with applicable laws.
This information is for educational purposes and is not legal, financial, tax, or investment advice. It should not be substituted for information from professionals authorized to practice in your area. You should always consult a suitably qualified professional regarding your specific situation.
