The question we’re answering today is a very straightforward one: What is a power of attorney (POA)? In simple terms, a power of attorney is a legal document that gives someone else the right to act on your behalf. A power of attorney is common and quite effective estate planning tool. If you’re thinking about creating one, here are some things you should know:
What is a Power of Attorney?
A power of attorney is a legal document that gives someone the ability to make crucial legal decisions for another person. You can actually use a power of attorney in conjunction with a living will or other such documents. We actually encourage you to be as thorough as possible when it comes to your estate planning documents. Just make sure that the information on all of them is the same. It’s important to keep to do that to avoid any confusion.
A power of attorney often comes in effect if you are not able to make decisions for yourself. For example if you’re in a coma or have dementia. To our knowledgeable readers, a power of attorney might sound a bit similar to a living will. So what are the differences? Living wills may only apply during specific times. For instance, when undergoing surgery or coming into the hospital for treatment; On the contrary a power of attorney applies 24/7 until death occurs. Or alternatively, until another person takes over control of your finances or health care decisions.
What does a Power of Attorney do?
As we said before, a power of attorney is a legal document. It allows you to appoint someone else, an agent, to make decisions for you in certain circumstances. For example:
If you are unable to make any decisions due to illness or injury.
Or if you wish for your loved ones not to be involved in making decisions about your care.
It’s important to clarify something here: A power of attorney is not a last will and you cannot use it as such. Although it gives someone authority over your personal finances and other assets if necessary, there are limits. Some people choose this option because they would prefer their financial affairs remain confidential from certain family members. That’s also why that it’s important who’s your next of kin. A power of attorney can also be useful if one wants to avoid probate court paperwork and fees. This is relevant when passing on property after death (which can sometimes take years).
What are the limitations of a Power of Attorney?
You might be wondering, then, what the limits of a power of attorney are. First of all, a power of attorney does not replace an estate plan. Additionally, you cannot use it as a substitute for other legal documents. After all, the person you name to act on your behalf may have limited knowledge about your wishes. It is then important that they have as much information as possible. Information, specifically, about your family and financial situation since they’ll be making decisions on your behalf.
In addition to these limitations, there are other factors that are important. Certain things can affect how much control they have over your finances and property during this time period:
The type of power you grant the in the POA document. For example: only payable-on-death accounts or all accounts.
Your age at the time you become incapacitated one way or another. The older you get, the more difficult it becomes for you to fully understand your own situation. If you draft a power of attorney when you’re in such state, a court might have difficulty accepting your word.
What is an attorney-in-fact?
An attorney-in-fact is the person who you name to act on your behalf. You may have heard of them as agents. The legal term may differ from state to state, but their duties are usually the same: They have the ability to make decisions. Or even sign documents and handle other legal matters for you.
An attorney-in-fact can:
Make financial decisions.
Open or close bank accounts.
Sign contracts or deeds on your behalf.
Pay bills (and deduct the payment from your bank account).
You can define the extent of power of your attorney-in-fact. This can heavily depend on the type of power of attorney you have in place. Or even the specific clauses you’ve included in the document.
Choose your attorney-in-fact carefully
You already said that you give your agent the right to act on your behalf. That’s why it’s crucial to pick someone that you can trust completely. Think someone close to you. Even better think of someone who knows your preferences and wishes.
In plain language, a power of attorney is a way to give someone else life-changing power. The agent can use this authority in any way that doesn’t violate the laws of your state or country. Therefore, pick someone who’s trustworthy and ideally good with money.
Summing up, you may want an agent to manage your finances, or other affairs if:
You’re incapacitated because of an accident or illness. With an agent you don’t lose control over these important decisions just yet.
You need help because you’re too busy with other responsibilities or commitments. This is not a common reason for a power of attorney.
You should then choose an attorney-in-fact depending on your needs and circumstances.
A power of attorney is a very important document. It’s also a document that you should take the time to understand. When creating a power of attorney, make sure that you’re fully aware of everything that it entails. You also have to know who your attorney-in-fact will be before signing it.
Myend offers the perfect estate and end-of-life planning for all! Even if you don’t want a legally binding power of attorney, we have a solution. Check out our advanced care directive for more information. Have a look here to learn more. And if you’re ready for action, sign up today for your free account! The estate planning of the future is here today.