As with most things, there are both advantages and disadvantages associated with a power of attorney. Understanding some of the ins and outs of a power of attorney can help you make an informed choice as to whether you actually need one.
Basic definition of a power of attorney
The individual who creates a power of attorney is referred to as the “principal.” The individual who is authorized by the power of attorney to act on behalf of the principal is referred to as the “agent” or the “attorney in fact.” The agent is considered a fiduciary of the principal. Different types of powers of attorney include general, limited, health care, financial, durable, and springing.
Common purposes for a power of attorney
A power of attorney is often used to pay bills, manage bank accounts, or manage financial portfolios and real estate investments. The authority or power that is conveyed to the agent can either start immediately or only after a specified event occurs. An important aspect of a power of attorney is that it does not require you to permanently relinquish the right to manage your own affairs. Instead, it simply allows someone else to act on your behalf, whenever that becomes necessary.
The difference between a general and limited power of attorney
One way that powers of attorney can differ is the scope of power that they grant to the agent or attorney in fact. Since everyone’s needs are unique, the amount of power they need to give to someone else will likely depend on their purpose for creating the power of attorney. As far as the scope of authority goes, a power of attorney will either be “limited” or “general.”
Understanding a general power of attorney
In simple terms, a general power of attorney provides broad authority to the agent, concerning various decisions, such as health care, financial or business matters. A general financial power of attorney, for example, allows an agent to transact any or all business for the principal, relating to their financial matters. A general power of attorney will typically last for a specific period of time, based on your inability to handle your own affairs. For instance, if you need to travel out of the country, and you need someone to handle your business affairs while you are gone, a general power of attorney may be a good choice. General powers of attorney are often included as part of a comprehensive estate plan.
How a limited power of attorney is different
A limited power of attorney, which may also be referred to as a “special” power of attorney, sets out very specific decisions the agent is allowed to make on behalf of the principal. For instance, a limited power of attorney could be created for the limited purpose of allowing your business partner, to allow her to handle very specific business issues, in the event you become incapacitated, whether temporarily or permanently. Another example is a limited power of attorney for handling rental property. You can authorize your agent to handle all aspects of the management of your property, such as collecting rent, negotiating lease terms with prospective tenants, or evicting tenants, whenever necessary. Once an agent completes the tasks required in a limited power of attorney, the powers are revoked and the limited power of attorney is no longer effective.
Health care power of attorney
A health care power of attorney allows you to identify an agent to make health care decisions for you, if you become incapacitated. The authority can include the power to consent to, or withdraw from, a specific type of medical treatment, or a category of treatment, even if death would result. The terms of the health care power of attorney should include very specific instructions that the agent is required by law to follow. An “advance directive” is usually created when a health care power of attorney and a living will are combined.
Should I create a durable power of attorney?
You may be wondering whether your power of attorney should be “durable” or not. A durable power of attorney just means that it will remain in effect even if you, the principal, becomes incapacitated. In other cases, the power of attorney may no longer be effective if you are no longer legally competent. A durable power of attorney can also be created in a way that it only becomes effective when you becomes incapacitated. The benefit of creating a durable power of attorney is that you have the option to choose your agent now, so that your agent can make decisions for you and act on your behalf in the future. The agent you designate in your power of attorney will be able to step right into your shoes, whenever necessary. Without a durable power of attorney, a guardian will be needed, and that type of proceeding can be very expensive and time-consuming.
If you have questions regarding power of attorney, or any other estate planning needs, please contact the Schomer Law Group for a consultation, either online or by calling us at (310) 337-7696.