A power of attorney is a legal document that conveys decision-making authority from the principal (the person the decisions are about) to an agent (who can make the decisions). The principal can give varying degrees of control to the agent. A power of attorney can be beneficial if you suffer from a debilitating injury or illness, have an aging parent, or care for a disabled adult child.

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How Does a Power of Attorney Work?

The principal is the person executing a power of attorney. They give the agent, the person or business named in the document, the authority to make decisions on the principal’s behalf. Typically, a power of attorney gives the agent the authority to manage the principal’s financial and health care matters. Still, the principal can increase or limit the agent’s authority.

A power of attorney becomes effective if the principal is disabled, has a prolonged illness, or cannot be present when signing a legal document regarding a financial transaction. Formal requirements vary from state to state for creating a legally valid power of attorney. Your state may require that a power of attorney be in writing, signed by both the principal and the agent, witnessed by a third party, and notarized. Some states require a power of attorney to be filed with the court to become legally valid. Check your state laws to ensure that your power of attorney meets all requirements to become legally valid.

What are the Types of Power of Attorney?

Agents are authorized to act on behalf of principals based on the type of power of attorney. There are multiple common types of power of attorney, and below are the types of power of attorney and what they do.

General Power of Attorney

A general power of attorney gives the agent broad legal authority over the principal’s affairs. When a principal executes a general power of attorney, the principal gives the agent the control to take any legal action that the principal may take. An agent’s authority includes signing contracts on the principal’s behalf and opening or closing a bank account. 

Although an agent in a general power of attorney has broad authority, state law may prohibit the agent from taking certain acts, like using the principal’s money to pay for the agent’s expenses. A general power of attorney does not grant the agent authority over the principal’s medical decisions.

A general power of attorney ends if the principal revokes the document, at the principal’s death, if the principal becomes incapacitated, or if the general power of attorney includes an expiration clause on the predetermined expiration date.

Health Care Power of Attorney

A health care power of attorney gives the agent limited authority over medical decisions when the principal cannot make decisions. A health care power of attorney gives the agent a large amount of power and carries a heavy responsibility. It allows the agent to make lifesaving or end-of-life medical decisions for the principal. 

The agent’s authority becomes ineffective until the principal cannot make medical decisions for themselves. The power ends once the principal can make their own decisions again.

Durable Power of Attorney

A durable power of attorney also gives the agent broad authority to act on behalf of the principal. Under control provided by a durable power of attorney, the agent may manage the principal’s financial, medical, and other personal affairs.

The agent’s authority becomes effective the moment that the principal becomes incapacitated. The agent’s authority expires at the principal’s death.

How to Choose the Right Agent

Despite the type of power of attorney you create, the agent has a lot of responsibility. Choosing someone you trust to decide about intimate areas of your life would be best. Take inventory of those close to you and consider if they have any of the following qualities:

Trustworthiness

You want a person that you can trust to serve as your agent. By creating a power of attorney, you are giving up control of your finances, health care, and other essential parts of your life if you become incapacitated. In some cases, you may be giving another person the power to agree to contracts in your name, and if they make a bad deal, you are still on the hook for contractual obligations. The person you choose as an agent should be the kind of person you can trust to take their commitments seriously, and someone you know can take the wheel for you when you cannot.

Assertiveness

Your agent should be assertive and able to enforce your decisions even if they receive pressure from your family to make a different choice. You may use your power of attorney to make crucial end-of-life health care decisions. These choices may surprise your family, and they may pressure your agent to make a different decision that is contrary to yours. It would be best if you had an agent that would hold fast to your choices and enforce your wishes.

Objectivity

Although it may seem like a good idea to use your children or parents as an agent, the emotional nature of circumstances when a power of attorney becomes effective may cause your family to lose their objectivity and fail to fulfill your wishes.

Knowledge

Knowledge of a particular area, for example, finance or business, can make for a good agent. It would be best if you had an agent with a background in the subject matter making business decisions on your behalf if you become incapacitated. You can trust that they will make the right decisions until you return.

What are the Benefits of Having a Power of Attorney?

Having a power of attorney can decrease the anxiety that comes with the uncertainty of contracting a severe illness or suffering from a sudden disability. If you choose an agent to handle your affairs before you get hurt or become ill, you take the stress of making life-and-death decisions or essential business or financial decisions off your loved ones. A power of attorney helps the principal maintain control of their affairs even if they cannot communicate their wishes.

Are There Downsides to Having a Power of Attorney?

There are some risks to creating a power of attorney. For example, an inherent lack of oversight of the agent’s actions can lead to fraud. To avoid this issue, it is essential to consider your agent very carefully when creating a power of attorney.