What is a power of attorney (POA)
A power of attorney is a legally binding document that allows you to appoint someone to manage your property, medical, or financial affairs.
Although it can be uncomfortable to think about needing one, a POA is an important part of any estate plan. Anyone over 18 can create a POA, and it's a common starting point for people who are ready to start formalizing plans for their future.
POA is typically used by those who cannot manage their affairs. This is generally due to an illness, aging, a disability, or simply being away for an extended period of time.
Each type of POA gives your attorney-in-fact—the person who will make decisions for you—a different level of control. Some POAs take effect immediately after signing, and others kick in if you become incapacitated.
In this article, we'll explore the role of an attorney-in-fact and the authority a POA grants. We'll also cover the different types of POAs and tips for crafting a legally binding document.
What does a power of attorney do?
The POA gives the attorney-in-fact (used interchangeably with "agent") the power to make decisions about your affairs. The type of POA you create dictates which affairs an attorney-in-fact has authority over until the contract expires or you die.
The decision-making power of an attorney-in-fact takes effect at different times, depending on which POA you select.
Note: No matter which type of POA you choose, it will become null and void when the principal—the person who creates the POA—dies. Upon their death, the Trustee of the Trust or executor of the will becomes responsible for carrying out their instructions and distributing assets.
What are the limits of a power of attorney?
No power of attorney is legally binding unless it's written and signed in accordance with your state's laws.
You must also be of sound mind when you sign your POA document, or it can't be upheld in court.
Any terms you feel need clarification can be outlined in your POA document. If you're unsure of how to do this or the best wording, enlisting the help of an attorney can simplify the process.
Attorney-in-fact vs. power of attorney: What's the difference?
A power of attorney is the document you use to stipulate who should manage your affairs when you're unable to, under what circumstances, and any specific wishes you want to be upheld.
An attorney-in-fact is a person you name in a POA document who will help manage your affairs when the POA goes into effect. Whether this is a short- or long-term situation, this person will be responsible for making decisions on your behalf as a fiduciary.