General and medical power of attorney have become a standard component of estate planning. They are so commonly used that you’d think everyone knows the rules. However, there are some aspects of power of attorney that are not written into the documents themselves, and they are far from obvious to everyone.
Let’s start with by defining exactly what a power of attorney is, and how it can help you prepare now for temporary or permanent incapacity in the future.
What Is a Power of Attorney?
A power of attorney is a legal document that grants permission to another individual to act and make decisions on your behalf, while you are living.
It is important to note that many people use the term “power of attorney” to refer to both the legal document and the person appointed within that document. The document itself specifies whom you appoint to act and make decisions on your behalf, and it is often created as part of a more complete estate planning package.
The person you appoint to act on your behalf is actually called an “agent” or your “attorney-in-fact.” You should carefully consider who you decide to appoint as an agent, because the responsibilities of an agent are not to be taken lightly. Depending on which type of power of attorney you sign, your agent may be responsible for your medical affairs, business dealings, legal matters, and finances. Such a person should be someone you know well, respect, and trust.
It may help to appoint more than one agent (either as a back-up or to work together as co-agents). For instance, many people appoint their spouse as their agent, but if you are both incapacitated simultaneously (in a car accident, perhaps), someone else will need to act in their stead. Likewise, many spouses are traumatized when their loved one is hurt or ill and may find it difficult to make decisions or act as responsibly as they normally would. Piling additional responsibilities onto your spouse’s shoulders at a time when they are emotionally overwhelmed may not always be the best plan.
As estate planning attorneys with decades of experience, we work with our clients to consider the importance and gravity of selecting your agent wisely and to avoid common pitfalls.
As with most estate planning, it is best to prepare power of attorney long before you need them. If you want to ensure your finances and well-being are protected, contact one of our experienced estate planning attorneys for more information.
Five Types of Power of Attorney
Many people fear granting too much power to an agent and want to ensure they are not relinquishing their own independence. Fortunately, there are five different types of power of attorney that allow you to decide what powers your agent will have, and under what circumstances they will have the authority to act on your behalf:
1. Medical Power of Attorney
A Medical Power of Attorney designates an agent to make medical decisions and authorize medical procedures on your behalf. A Medical Power of Attorney is only valid if you are unable to make or communicate your own medical decisions. If you do not designate a medical agent, hospitals and other medical providers will rely on your next of kin to make such decisions.
The four other types of power of attorney are concerned with business and financial affairs rather than medical issues:
2. Traditional General Power of Attorney
Traditionally, a General Power of Attorney goes into effect the second it is signed. It permits your agent to conduct any business that you could conduct yourself, including managing finances and making legal and business decisions. This form of power of attorney terminates if you become incapacitated or pass away. Like most other forms of power of attorney, it is also revocable if you later decide to switch agents.
3. Limited Power of Attorney
A Limited (or special) Power of Attorney grants only limited powers to an agent, usually for a specific purpose. For example, you may grant an agent the power to sell your home on your behalf. A Limited Power of Attorney can spell out the powers granted with precision. It can include an expiration date, if you wish, and can specify any powers you do not wish to grant.
4. Durable Power of Attorney
A Durable Power of Attorney is virtually the same as a General Power of Attorney, except your agent is permitted to retain their powers if you become incapacitated. This type of arrangement is a wise way to enable your spouse or children to manage your affairs if you are hospitalized or diagnosed with a limiting condition. The Texas Estates Code provides a Durable Power of Attorney form that is valid under Texas law.
5. Springing Durable Power of Attorney
A Springing Durable Power of Attorney only becomes effective when a specific event occurs, such as your incapacity. You designate an agent whom you trust to manage your affairs if something prevents you from handling things yourself. Until that day comes, no one will have that power.
Some Unwritten Issues
When you are doing your estate planning and considering power of attorney, you may like the sound of a Springing Durable Power of Attorney, which “springs” into effect only when the signer becomes incapacitated. The problem is that a “springing” power will force your agent to produce medical evidence to prove you have become incapacitated.
Businesses like banks, title companies, insurance companies, etc., hate to take risks, so they tend to be picky about how much proof of your incapacity they want to see. They may even insist that their legal department review everything before they will honor the power of attorney. By the time that happens, there could be serious adverse consequences, such as, you could become delinquent on your mortgage or car payments, or your insurance policy could lapse due to nonpayment of premiums.
It may be preferable to create a Durable Power of Attorney that is effective immediately. You can and should speak to your agent and be very clear with them about how you expect them to use (and not use) your power of attorney. If the agent is not loyal enough to be trusted with a power of attorney that is effective immediately, you should probably reconsider the wisdom of appointing that person at all.
Another problem most people do not anticipate is that some financial institutions will refuse to honor a general power of attorney, even if they are designed to be valid immediately. A signer of a general power of attorney should provide the signed document to their bank(s) and ask each bank whether they will honor it. Some banks and brokerage houses require you to add your agent’s name to your account, in advance, as an authorized signer.
The agent need not be told that they are authorized to sign on your account. The agent only needs to know they hold your power of attorney and can use it if the need arises. This way, you can be assured that, if the need ever does arise, your bank will definitely allow your agent to act on your behalf.
Can I Use a Power of Attorney Form I Found on the Internet?
Just as you can represent yourself in court, there is no requirement that you seek the assistance of a lawyer for a power of attorney. There are DIY power of attorney forms readily available on the internet, but: buyer beware. The reason DIY estate planning documents are not advised is because estate planning is not as simple and easy as people may think.
Many states have very specific requirements for these types of documents, and a failure to meet those requirements could invalidate the document – leaving you hanging at the worst possible time.
Our philosophy: If something is important enough to put into a legal document, it’s important enough to do it right. The last thing most people want are power of attorney documents that don’t work when they need them.
