What Is Power of Attorney?

by Team eLocal
Power of attorney POA legal document and pen.

You may have heard the term “power of attorney” being tossed around, but … What is that, exactly? What is the significance of naming a power of attorney, and why would you want to do it?

A look at these frequently asked questions can help clear up some of the mystery surrounding this very common legal designation.

What Is Power of Attorney?

A power of attorney, or POA, is a legal authorization that empowers someone to act for someone else. The person designated to act for another is referred to as the “attorney-in-fact" or “agent.” The person empowering the attorney-in-fact is called the “principal.”

What Does POA Allow a Person to Do?

Depending on the type of POA being authorized, it might allow for a specific action or a broad-sweeping authority to handle certain affairs of the principal until the principal’s death, recovery from an illness or revocation of the POA. This includes giving the agent or attorney-in-fact either limited or nearly unlimited power to make decisions in the principal’s stead, including those regarding property, medical care and finances.

When Are POAs Used?

POAs are used when a principal is unable to act for themselves or prefers an agent to act for them in a specific situation. This might happen when someone is unable to be present to sign the necessary paperwork to complete a financial transaction. A POA is also used when the principal becomes incapacitated and unable to make their own decisions.

What Are the Types of POAs?

There are several types of POAs. Which one a principal chooses to use depends on their current situation and the objective they are trying to accomplish.

  • A general POA provides authority for the agent to act on the principal’s behalf in any and all matters that are allowable under state law. For example, the agent or attorney-in-fact may be provided authority to issue checks, handle banking account transactions, manage assets, sell real estate or other property and file the principal’s tax return.
  • A limited POA spells out specific events or matters over which the agent has authority to handle. For example, a limited POA may be drafted to authorize the agent to handle the principal’s investment accounts. The POA can only act for the agent on assigned actions. Further, the limited power of attorney may be in force for a specified time period. For instance, the limited POA may go into effect during the principal’s year-long trip to another country.
  • A medical POA, sometimes called a healthcare power of attorney or durable POA, gives the agent or attorney-in-fact control of the principal’s healthcare decisions in the event that the principal becomes incapacitated or otherwise unable to make decisions on their own. It may also be referred to as a healthcare proxy. The medical POA usually takes effect when the principal’s attending physician deems it appropriate. All medical choices for the principal are the responsibility of the agent at that point.
  • A springing power of attorney goes into effect at a point in the future after a specific occurrence to trigger it. For instance, a springing POA may go into effect when the POA becomes incapacitated.

POAs can be durable or non-durable. A non-durable POA is used for just a specific time period and for a specific transaction that the principal wishes for the agent to undertake on their behalf. Upon completion of that transaction, the non-durable POA expires.

A durable POA is more far-reaching than the non-durable iteration. It's used to direct a chosen agent to manage the principal’s affairs if the principal becomes unable to do so or becomes incapacitated. This type of power of attorney authorization remains in force when the principal becomes ill or disabled and is unable to personally act on their own.

The Bottom Line

A power of attorney allows a named agent to act on your behalf. The type of POA you choose to authorize gives the chosen agent or attorney-in-fact either limited or broad authority to make choices for you in regards to your finances, property and healthcare. An attorney specializing in estate planning can help you draft a POA document, although there are DIY software options that may prove to be viable alternatives for some users.