Overview of Powers of Attorney and Advance Medical Directives

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Overview of Powers of Attorney and Advance Medical Directives

Let us begin with a few general points. A power of attorney (POA) is a document in which one person, the "principal," gives authority to his "attorney in fact" (who need not be a lawyer) to act on his or her behalf in financial matters. Rather than using legalese, we will refer to the attorney in fact as the principal’s "agent," since that’s more descriptive of the job.

The scope of the POA can be quite limited—e.g., the purchase of a single real estate investment—or almost unlimited. Note that all powers of attorney end at the death of the principal. The agent has no further authority at that point.

When they are used

There are two kinds of situations in which POAs are used. First, they can make business or financial transactions much easier, simply by allowing a busy or absentee party to send somebody to act in his or her place.

Experience shows that if the need for a POA can be seen in advance, it is better to prepare a limited POA, referring only to the matter at hand (e.g., "the purchase of the real estate in Anytown, USA, known as 123 Oak Street") and specifying precisely the expiration date and full extent of the power. This is especially so with regard to real estate transactions. If you plan to use a stand-in at the closing, make sure he or she is acting under a POA that has been okayed in advance by the other parties. That will avoid any last-minute questions regarding your agent’s authority.

Secondly, and more important for estate planning, a POA allows you to delegate broad authority over personal financial affairs even—and especially—in case you become disabled or incompetent. For this, a "durable" POA is necessary. It is a very broad and detailed document that also states, "This POA shall not be affected by my subsequent disability or incapacity, or by the passage of time." This sentence is what makes it "durable"—even if you "take a licking," this kind of POA "keeps on ticking." Without that sentence, the law would render the POA inoperative when you become mentally disabled—precisely when it is most needed.

POAs vs. guardianship

Assuming one has a trusted agent, the durable POA can easily and inexpensively provide the peace of mind sought by many people in planning for possible disability. In this way, the durable POA can help avoid the need for guardianship, which involves a protracted court proceeding.

Be specific

It’s wise to be as specific as possible about the powers granted to your Agent: The party being asked to honor it needs to be sure that your Agent really does have authority from you to do whatever he or she proposes to do on your behalf. If that authority is not crystal clear, the POA might not be accepted by finicky banks or others to whom it is presented.

Your signature on the POA must be notarized. Additionally, some parties require that your signature be guaranteed by a stamp from a bank.