A power of attorney, or POA, allows you to designate another person (the “agent” or “attorney-in-fact”) to act on your behalf with financial affairs. This allows the agent to make critical decisions for you. This is especially important when you are incapacitated or unavailable to make decisions.
But who needs a power of attorney?
What powers can this document convey?
Below, we explain the different types of POA and how to draft them.
The Four Types of POA
There are four main types of POAs and different degrees of responsibility to delegate.
Limited Power of Attorney
A limited power of attorney usually takes effect once a limited power of attorney agreement is signed. It is used for limited transactions or events.
For example, if you cannot attend a real estate closing you can give your power of attorney the authority to handle the real estate closing.
Or, if you’re planning to be out of the country and have some financial tasks that must be handled, you can give your power of attorney the authority to pay bills and take care of other necessities in your absence.
On an even more limited scale, a financial advisor can have a power of attorney that grants authority to buy and sell investments on the principal’s behalf.
Durable General Power of Attorney
A durable general POA allows the agent to manage most if not all of your financial affairs easily and inexpensively.
This is an especially important document after you become incapacitated or incompetent.
In most circumstances, this document is effective immediately when you sign it and, unless canceled, remains effective until your death.
Springing Power of Attorney
As the name implies, a springing POA becomes effective only after a specific event. The POA essentially “springs” into action upon the triggering event.
Some common examples of triggering events include your incapacitation or a planned lengthy absence.
Medical Power of Attorney
A durable power of attorney for healthcare—a medical POA—is a hybrid of the durable and springing POA.
In most circumstances, this medical POA takes effect only when specific conditions have been met.
For example, a medical POA may kick in once your attending physician determines that you lack the capacity to make or communicate health care decisions.
Most medical POAs are designed to end once the principal is no longer incapacitated.
How a POA Works
At its core, each type of POA is intended to allow one person to act on your behalf.
In most instances, a financial power of attorney is effective immediately and is not springing.
Many members of the military, expatriates, and those who travel frequently find POAs a useful way to ensure their finances are taken care of even when they’re unable to be hands-on with them.
Those who no longer feel comfortable self-managing financial decisions can also opt for a POA, as a POA will allow the agent, among other powers, to pay bills, make banking transactions, list, and sell real estate, and negotiate health care expenses.
Once a POA is no longer needed, it is important to follow the law and the terms of the document itself to revoke a POA.
For example, with a financial power of attorney, in some circumstances, if the agent does not have actual knowledge of its revocation (e.g., agent’s receipt of written revocation), then the agent can continue to act on your behalf.
It is important to talk to an attorney about the steps needed to revoke a POA. Under North Carolina law (and under many other states’ laws) a signed copy of a financial power of attorney in an agent’s possession is just as good as an original.
POA & Spouses
A lot of people assume that if they are married, their spouse can make financial and medical decisions on their behalf.
In most if not all circumstances your spouse does not have the legal authority to act on your behalf with financial or medical decisions. This is especially a problem when you become incapacitated or incompetent.
How to Get a POA
There are a few important steps to take once you’re ready to create a power of attorney.
Select an agent you trust
The powers that are bestowed by a POA can’t be understated. The person holding your POA will have the ability to make financial (and sometimes health care) decisions on your behalf, and these decisions are as binding and final as those you make yourself. Your agent should be someone you trust to handle your affairs.
Set the POA’s scope
Next, you’ll want to determine what you’d like the POA to allow your agent to do on your behalf. You’ll also want to assess the circumstances in which you’d like the POA to take effect or be triggered.
Affirm mental capacity
For a POA to be legally binding, you must have sufficient mental capacity to execute a legal document. That is, you must fully understand both the nature and the practical effect of the document you are executing.
This is one reason why it’s so important to have a valid POA on file before your health begins going downhill. At a certain point, you will no longer be able to execute a legally binding POA.
If you do not have a POA then it can result in court ordered, court mandated, and court supervised guardianship, which is time-consuming and very expensive.
Contact an attorney
Although there are form POAs available online, it’s always a better idea to contact an attorney in your state.
Each state has its own laws on what makes a POA effective, and with a document this important, you don’t want to discover that a cut corner has had a real impact on your agent’s ability to act on your behalf.
If you’re ready to execute a POA, or if you have questions about the process or what type of POA would benefit you the most, get in touch with Weaver, Bennett & Bland. Our experienced attorneys can draft a comprehensive POA that will help tackle whatever your needs might be. Just give us a call at (704) 844-1400 or contact us to speak to a member of our team today.