What is power of attorney?

Family is one of life's greatest gifts. It's also a huge responsibility, especially when multiple generations depend on you at the same time. Whether you're already experiencing this or you know it’s coming, it's never too soon to start preparing.

Power of attorney (POA) helps people plan for when a loved one loses the ability to make their own decisions, usually because of mental or physical incapacity. It's different from will or estate planning, which you use to explain your wishes for your estate. Here's what you need to know.

What is power of attorney?

Power of attorney is a legal document that lets someone else act on your behalf. It may cover all legal decisions or selected issues, such as healthcare decisions or financial matters. Depending on your needs, it may be temporary or permanent.

A power of attorney can be drawn up for any reason. The most common is preparing for a future scenario when an older loved one can’t make their own decisions. Some reasons why power of attorney documents may be created include:

• Medical emergencies, chronic illnesses, or other medical incapacitation

• Financial management in case the principal becomes incapacitated 

The person who creates the power of attorney is the principal, and the designated decision-maker is the agent. The principal must be fully mentally competent when they make the POA, and they can only designate an agent for themselves, not on behalf of someone else.

If someone is incapacitated, the court may appoint a conservator or guardian to manage their affairs. Creating a POA in advance may help some families to avoid this process.

Types of power of attorney

Different POA arrangements give agents different types of authority. Here are a few of your options.

General POA

A general power of attorney allows the agent to take any action the principal can legally take, with select limitations. An agent can only write or change the principal's will or transfer money from the principal's bank account to their own if the POA document specifically authorizes it.

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The principal can also set their own limitations within a general POA. For example, if you want your agent not to be able to sell your house, you can specify that in the document. 

The most important thing to know about a general power of attorney is that it ends when the principal becomes incapacitated — which is often when a POA is most important. If you want a POA to stay active no matter what happens, you'll want to consider a durable power of attorney. 

Durable POA

A durable power of attorney remains in effect until the principal dies or revokes it. The principal can specify whether it takes effect immediately or when they can no longer make independent decisions.

Some states assume all POAs are durable unless they explicitly say otherwise. Others require the POA to contain specific language indicating durability. Check with an attorney if you need clarification on your state's laws.

A principal can revoke their durable POA by creating a written statement and signing it before a notary. Someone might need to do this to choose a different agent or change the terms of the POA. Only the principal can revoke a POA, and they must not be incapacitated when they do so.

Medical POA

A medical power of attorney lets the agent make healthcare decisions for the principal. Another name for a medical POA is a healthcare proxy. A medical POA can make all care decisions a principal would make for themselves, including:

• Treatments and medications

• Insurance providers

• Hospitals or long-term care facilities

• Use or withdrawal of lifesaving measures

• End-of-life care

• Organ donation

A medical POA is typically durable, but it's worth verifying the document's wording. Checking in with a lawyer is often the best way to get peace of mind.

Springing POA

A springing POA takes effect when a specific event happens. If it activates when the principal becomes incapacitated and remains active through their incapacity, it's a springing durable power of attorney.

A springing POA may be general or cover specific types of decisions. For example, your parent might create a springing medical POA authorizing you to make their healthcare decisions if they are unconscious or otherwise unable to act for themselves. 

Limited POA

A limited power of attorney lets the agent act on the principal's behalf in specific scenarios, for a set time, or both. A medical POA is a type of limited POA because it restricts decision-making to healthcare. Another option is a financial power of attorney, which lets the agent make decisions about things like banking and investing.

Some people use limited POAs for particular scenarios. For example, if you have a family member that is having a major medical procedure, they might draw up a limited POA so a relative or friend can manage their affairs while they’re recovering. Or, if they’re hiking the Appalachian Trail and know they’ll be "off the grid," they can set up a limited healthcare POA in case of an accident.

When writing up a limited POA, all parties should be very specific about the authority the agent will have and how long that authority will to last. 

Who may need power of attorney?

Anyone can benefit from having a power of attorney. Medical emergencies can happen anytime, and knowing that someone you trust will handle your affairs is helpful. And with options like springing power of attorney, you don't have to worry about losing control prematurely.

The more vulnerable you or your loved one is, the more important it is to have a POA. Here are three situations when you might consider drawing up a POA sooner rather than later.

Aging parents

According to a 2023 Policygenius survey, less than half of the "sandwich generation" have talked with their aging parents about future healthcare and financial needs. Working with your parents to create a POA helps your family clarify what they want and when they'd need you to take over the decision-making. 

A POA allows your parent to decide who they want to make their decisions while they're still capable of saying so themselves. Having that document in hand can reduce conflict about what your parent wants and who should be in charge. With those decisions already in place, you can focus on caring for your loved ones.

People with health challenges

Power of attorney provides peace of mind to people with a higher medical risk of incapacity. It lets you decide in advance who makes your decisions and what kinds of events would activate the POA.

You can set up a POA alongside a living will, which lays out your healthcare preferences if you can't express them yourself. It specifies what you would want so your POA agent doesn't have to assume or guess.

Parents planning for the future

As a parent, you understand how important it is to prepare your child for the future. Creating a POA is one way to take a load off their shoulders and ensure someone is there to make decisions if you can't. A minor can't be an agent, but you may be able to set up your POA so an adult child can take over as an agent.

How to get power of attorney

Setting up power of attorney requires correct documentation. But first, you want to have everyone on the same page.

Step 1: Open the conversation

Whether you want to create a POA for yourself or a loved one, having close family members on the same page is important. When explaining power of attorney to older adults, it's important to remind them they'll be in control as long as they're capable. They'll also appreciate knowing they have the final say in who has power of attorney because they're the ones who will sign the documents.

Step 2: Choose a POA type and select an agent

The more specific you are in setting up your POA, the better. The first step is to decide whether you want the agent to have broad authority or limit the POA's scope.

You may select more than one agent, in which case you'll want to prepare for potential disagreements. One option is to give different people authority over different domains — one for healthcare and one for financial power of attorney, for example.

Step 3: Create the document

A POA needs to be in writing and abide by state requirements for creating a POA. Some states have official forms you can fill out to give someone power of attorney. If your state doesn't have a form, you'll need to create one specifying the type of POA you want to set up, who the agent is, and what powers they have. It's a good idea to check with a lawyer who specializes in these types of documents, such as an elder care attorney.

Also, some states require you to sign the document before a notary public, witnesses, or both. 

Step 4: Distribute copies of the signed forms

It's essential for the agent and principal to each have copies of the POA. The agent may need to present the document to use their decision-making authority. You might also want to send copies to other important people, such as the principal's doctor or financial advisor, to help decision-making go faster when the agreement activates.

How to choose the right person for power of attorney

There are only two hard-and-fast rules for a POA agent: They must be over the age of majority — 18 in most states — and not be incapacitated. Other than that, the principal has the right to choose an agent. Some people pay a professional, such as an attorney or accountant. Others choose a family member or friend. Consider these factors when deciding who will be the POA agent:

• How close they live to the principal

• Their understanding of financial and medical processes

• Their trustworthiness and reliability

• Their ability to communicate clearly and collaborate fully with doctors, financial advisors and institutions, etc. 

If the person will have financial power of attorney, they should have strong money management skills. They'll likely be responsible for managing your or your loved one's bank accounts and investments, depending on what responsibilities the POA gives them. Trust is also essential since the agent will make big decisions on the principal's behalf. 

Risks associated with power of attorney

Handing over decision-making authority always comes with risk. An agent may:

• Pressure the principal to add more responsibilities

• Act against the POA and keep their violation a secret

• Make decisions that benefit themselves instead of the principal

There are legal protections in place to prevent certain abuses. For example, a POA agent may be a beneficiary of the principal's estate or life insurance policy but cannot change those documents without explicit permission.

To protect against other abuses, consider adding a requirement that the agent check in regularly with another family member or a neutral third party, such as a lawyer. You can also give copies of the POA to a trusted friend or family member so they know what the agent can do.

Remember that a principal can change a POA as long as they're competent enough to do so. If the principal is incapacitated and you suspect abuse, you can contact a lawyer or call the adult protective services authorities in your area. 

FAQs

What does power of attorney give you authority over?

The responsibilities of having power of attorney depend on what kind of POA the person creates. A general POA lets the agent make all decisions you can legally make for yourself, with any exceptions you specify.

What responsibility comes with power of attorney?

If you have power of attorney for someone, you're responsible for acting in their best interest and following the terms of the agreement. Should the time come when the principal needs to use their POA agent, the agent will be responsible for making financial decisions, managing money, and in some cases, making medical decisions and speaking with doctors. 

What are the disadvantages of having power of attorney?

Having power of attorney means acting in the principal's best interest and according to their wishes, even if you would make different choices. If you breach your fiduciary duty to the principal, you could be held liable. POA agents can also be held liable for any financial agreements signed, like co-signing on loans.