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What Is a Power of Attorney?

May 3, 2017
Estate Planning, Investing
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A power of attorney is a legal document that gives a person the authority to act on another’s behalf. Because life events can spur the need for a power of attorney for any person over 18, all adults should consider setting up a power of attorney before they need one.

If you don’t have a power of attorney and become unable to manage your personal or business affairs, a court could appoint someone to act on your behalf. However, there’s no guarantee that the court-selected guardian will act as you would wish.

What does power of attorney authorize?

Power of attorney authorizations are determined by your needs and wishes. The legal authorization can be general and sweeping, or it can be specific and limited.

A limited power of attorney may sometimes be granted for convenience. For example, you could authorize someone to execute documents in your name for the sale of your home if travel prevents you from being at the real estate closing.

Common longer-term powers of attorney allow your representative to make financial and medical decisions on your behalf. Depending on the situation, the legal document can be effective immediately. However, in most cases the power granted to your designated agent is “springing.” This means it doesn’t take effect until a certain date or specified event, such as your becoming incapacitated.

Under a “durable” power of attorney, your agent’s authority can go into effect immediately if you so choose, and it will continue even if you later become incapacitated.

Power of attorney requirements can differ from state to state.

Financial powers of attorney

With a financial power of attorney, you appoint an agent to manage your general financial affairs. These can range from everyday tasks such as banking transactions to more complex moves like transferring property into a trust.

A sampling of power of attorney forms from various states shows that legal agents can be authorized to handle a wide range of financial matters, including:

  • Distribution of assets to cover daily expenses
  • Real and personal property transactions
  • Stock, bond or other securities trades
  • Banking duties
  • Business operations
  • Insurance and annuity transactions
  • Estate, trust and other beneficiary needs
  • Legal claims and other litigation
  • Retirement benefits payments
  • Tax filing
  • Charitable contributions
  • Handling of government benefits, including Social Security, Medicare or unemployment compensation

The extent of your agent’s financial authority depends on the directives you set forth in advance.

Medical powers of attorney

At its most basic, a medical power of attorney authorizes your designated agent to make medical decisions on your behalf.

A medical power of attorney, sometimes called an advance directive, gives your agent the authority to make all health care decisions for you in accordance with your wishes, including religious and moral beliefs, when you’re unable to do so.

Health care, for power of attorney purposes, generally covers any medical treatment or procedure to diagnose and treat your condition. Your doctor and medical facility must comply with the decisions made by your power of attorney representative.

It’s a good idea to discuss with your doctor the range of medical decisions that may be made on your behalf. Then make sure the person whom you grant medical power of attorney understands these and the decisions you want to be made in connection with each.

In some states, a medical power of attorney and advance directive or living will are combined into one document.

Selecting an agent for power of attorney

Aside from being a legal adult — 18 years, in most states — and of sound mind, there are no special qualifications for a person to be given power of attorney.

You can give one person power of attorney for all your needs, or you can split the responsibilities among different people. They can be family members or longtime friends. The key in all cases is that you know and trust the person or people you appoint.

You also should select successor agents for each power of attorney in case the primary person you name is unavailable or unable to act when needed.

Ending power of attorney

You can revoke or change a power of attorney designation whenever you wish. Power of attorney also ends if a court invalidates it or your agent is no longer able to serve. In some states, if a spouse has power of attorney, that authority ends when the couple divorces.

Ultimately, since a power of attorney allows your agent to act in your place, the designation ends with your death. Responsibilities related to your will and the distribution of your property rest with the executor of your estate. For more details on managing your estate, see NerdWallet’s estate planning basics.

Kay Bell is a contributing writer at NerdWallet, a personal finance website.