Managing legal and financial matters can be complex, but a power of attorney can make certain situations easier to handle. Power of attorney allows someone you designate to act on your behalf if you can’t express your wishes. Whether facing unexpected incapacitation, extensive travel, or wanting to ensure your affairs are handled according to your desires, understanding the various types of power of attorney is key.
In this guide, we’ll explore five different types of power of attorney, when they should be used, and how to create them.
- What Is a Power of Attorney?
- What Are the Types of Power of Attorney?
- How to Establish a Power of Attorney
- The Role of Life Insurance in POA Decisions
A power of attorney is a vital part of estate planning. Discover other essential items that should be included on your estate planning checklist.
What Is a Power of Attorney?
A power of attorney, often simply referred to as a POA, is a legal document that grants one person or organization (known as the “agent” or “attorney-in-fact”) the authority to act on behalf of another person (called the “principal”). This authority can be broad or limited, depending on what the principal specifies in the document.
The power of attorney can be used to handle various matters, including financial transactions, medical decisions, or legal affairs. It can be set up to take effect immediately or become active under certain circumstances, such as if the principal becomes incapacitated.
Various types of POA can be beneficial in many situations, including:
- Incapacity Planning: If something happens to you and you can’t manage your own affairs, a POA ensures that things will be handled according to your wishes.
- Travel Considerations: Going on a long trip or moving abroad? A POA can take care of things at home while you’re away.
- Real Estate Transactions: Buying or selling property can be complicated, and having a POA can make the process smoother if you can’t be there.
- Medical Decision Making: If you’re unable to make healthcare decisions, a POA allows someone you trust to do that for you.
- Elderly Care Management: If you have aging relatives, a POA can help you manage their care and finances.
- Business Operations: Running a business and can’t be present all the time? A POA can step in.
- Military Deployment: Military members, if you’re deployed, a POA takes care of things back home.
What Are the 5 Types of Power of Attorney?
There are many types of power of attorney, and understanding them will help you choose one that’s the best fit for you. Also take note that having more than one type of POA is not uncommon, as different types serve distinct purposes.
Durable Power of Attorney
Power of attorney can be durable or non-durable. With a non-durable POA, your agent’s authority ends if you become incapacitated. With a durable POA, your agent can continue to act even if you’re mentally or physically incompetent, for example, you go into a coma or develop dementia.
By having a durable POA in place, you and your family can feel peace of mind, knowing that you have a plan for the unexpected. This preparation reduces the likelihood of requiring court-appointed conservatorship or guardianship. As a result, you can save time, money, and avoid potential disputes within the family.
|Durable Power of Attorney vs Power of Attorney
|Remains effective during incapacitation.
|Becomes ineffective upon incapacitation.
|Suited for extended periods of management.
|More appropriate for short-term decisions.
|Enables ongoing decision-making authority.
|Limited to times of mental capacity.
|Can minimize the need for court-appointed conservatorship.
|May lead to court interventions in incapacity scenarios.
|Scope of authority can be customized.
|Typically offers a fixed range of authority.
|Useful for complex financial/business matters during incapacity.
|Primarily addresses immediate decisions.
General Power of Attorney
A general POA is essentially the non-durable version of the durable POA described above.
With general power of attorney, you authorize someone to act on your behalf in specific matters.
Here are some examples of what you might allow your appointed agent to do:
- Pay your daily living expenses using your assets.
- Oversee benefits you receive from Social Security, Medicare, or other government programs.
- Conduct banking transactions on your behalf.
- File and pay your taxes.
- Manage your retirement accounts.
General power of attorney can end whenever you wish. It will also end if you become incapacitated or pass away.
Special or Limited Power of Attorney
In contrast to a general power of attorney, which provides broad authority, a special or limited power of attorney grants your chosen agent the ability to handle specifically defined tasks, carry out particular actions, or make specific decisions on your behalf.
For example, imagine you live in Minnesota and have a vacation home in Florida. During one particularly cold winter, you decide to permanently relocate to Florida. You can create a special power of attorney and designate someone to manage selling your property in Minnesota on your behalf.
Springing Power of Attorney
A springing power of attorney only gives an agent the power to act if a specific event occurs.
For example, imagine you’re a small business owner who frequently travels for work. To ensure your business continues running smoothly, you establish a springing power of attorney. In this arrangement, you name a trusted business partner as your agent. You define a specific condition: if you’re away on business trips for more than two consecutive weeks, your agent gains the authority to make business decisions on your behalf.
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Medical Power of Attorney
A medical power of attorney, also called a healthcare power of attorney, designates an individual to make medical decisions on your behalf if you become incapacitated and are unable to make those decisions for yourself. This person is referred to as your healthcare agent or medical proxy.
Examples of decisions a medical proxy may make:
- Treatment Options: Making decisions about treatment choices, procedures, and therapies.
- End-of-Life Care: Deciding on life-sustaining treatments and end-of-life care preferences.
- Medical Procedures: Consenting to procedures, surgeries, and diagnostic tests.
- Medications: Approving medication plans and dosages based on medical advice.
- Choice of Doctors: Selecting doctors, specialists, and medical professionals.
- Pain Management: Overseeing pain management and comfort care.
- Healthcare Facilities: Choosing healthcare facilities, such as hospitals or rehabilitation centers.
To ensure your wishes are carried out, create a living will that guides your medical proxy’s decisions.
What Is a Living Will?
A living will is a document that outlines your medical preferences if you’re incapacitated and unable to communicate them.
A living will and medical power of attorney pair well together. In your living will, you outline your medical treatment preferences for situations where you can’t communicate them. Your healthcare agent can then use these preferences as guidance when making decisions on your behalf.
- Do you prefer life-prolonging treatment, regardless of your quality of life?
- Would you want treatment withheld if you can’t feed yourself?
- Do you want a respirator for a specific duration?
- Would you like your body donated to science?
A living will and last will and testament are very different. Learn more about the differences between wills and trusts.
The Terri Schiavo Case: A Tragic Lesson in the Importance of Estate Planning
You may recall the infamous Terri Schiavo case from the 90s. Schiavo suffered sudden cardiac arrest at home and, though successfully resuscitated, was left comatose. Doctors believed she would never awaken from her coma. Her husband wanted to remove her feeding tube, believing she wouldn’t want to live in a permanent vegetative state. Schiavo’s parents, on the other hand, felt she would want to live by any means necessary. A court battle ensued, eventually even reaching President George W. Bush.
The core of the dispute lasted over 15 years, with Schiavo on life support as her parents and husband disagreed about her fate. They were left to guess what she would have wanted because Schiavo had neither a living will nor a healthcare power of attorney. In March 2005, her feeding tube was finally removed for the last time.
The Schiavo case is a stark reminder of the turmoil and heartache that can ensue when proper estate planning documents are not in place, leaving families torn apart in the wake of a loved one’s incapacity or death.
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How to Establish a Power of Attorney
You can create more than one type of power of attorney. Depending on your needs, you may choose to have multiple agents, each responsible for a different type of POA. Coordination and understanding among these agents are vital, as they may need to work together to act in your best interest.
For example, say you have Alzheimer’s and your healthcare agent believes you would want to have in-home 24-hour care, but your power of attorney refuses to pay for 24-hour care and believes a nursing home to be a better choice. Now what? If they can’t come to terms, they will need to go to probate court to figure it out.
Setting Up a Power of Attorney
- Choosing Agents: You can appoint the same person for different roles, or choose different agents who understand and respect each other’s viewpoints.
- No Legal Expertise Required: You don’t need a lawyer to prepare a power of attorney, though legal guidance can be helpful.
- Legal Requirements: Your power of attorney document must be:
- Written clearly
- Signed by you in the presence of a notary public
- Dated accurately
- Specific about the powers being granted
- Creating a Durable Power of Attorney: If you want the power of attorney to remain valid even if you become incapacitated, you must include a statement like: “This power of attorney shall not be affected by the incapacity or incompetence of the principal.”
Who Can Be a POA Agent?
To be a power of attorney agent, you need to be at least 18 years of age and have the mental capacity to understand the responsibilities and duties involved. It’s not necessary for the agent to have any specific professional background or expertise, although depending on the powers granted, experience in certain areas may be beneficial. Before appointing an agent, it’s wise to have a thorough discussion with them about the duties involved.
How to Choose the Right POA Agent
Choosing the right power of attorney agent is an important task that requires careful thought and consideration. The agent will have the responsibility of carrying out your wishes, so it’s crucial to pick someone who is up to the task. Here are some key tips to guide your selection:
- Assess Trustworthiness: Choose someone you trust fully, such as close family or friends, since they’ll access sensitive information.
- Consider Compatibility: Ensure the agent can communicate and work well with other involved parties.
- Evaluate Willingness and Ability: Confirm the agent’s willingness and capability to serve, considering commitments, health, and location.
- Look for Relevant Expertise: Select someone with expertise related to the POA’s nature, like finance or healthcare.
- Think About Longevity: Pick an agent likely to be available throughout the POA’s duration, taking age, health, and relocation into account.
- Consider Co-Agents: Appointing multiple agents may provide balance but adds complexity; clarify how conflicts will be handled.
- Consult a Legal Professional: Seek legal guidance for tailored advice on your specific situation and jurisdiction.
- Talk Openly with Potential Agents: Discuss expectations, willingness, and any compensation with potential agents before deciding.
Remember, you typically have the right to change or revoke the POA if the agent fails to fulfill their responsibilities. Choosing the best POA agent is a highly personalized decision that requires careful consideration of your unique circumstances and needs. Taking the time to evaluate potential agents based on the factors above will help ensure that you select someone capable and committed to acting in your best interest.
The Role of Life Insurance in POA Decisions
Life insurance is its own separate financial tool. Its main purpose is to provide security and peace of mind for many families. It can also play a role in power of attorney decisions.
Depending on the terms of the POA and the laws in your state, a POA agent may have the authority to do a number of things for a life insurance policyholder, including:
- Purchasing life insurance coverage
- Paying life insurance premiums
- Renewing life insurance coverage
- Life insurance coverage conversion
- Changing life insurance beneficiary designations
- Creating a life insurance trust
Careful consideration is essential to avoid potential conflicts of interest, especially if the agent is also a beneficiary. Life insurance and POA decisions must be harmonized to align with overall financial and estate planning goals.
Life insurance can play a significant role in estate planning. Learn more about how it works.
Apply for Life Insurance With Quotacy to Protect Your Loved Ones Today
The loss of a loved one is an unimaginably difficult time for a family. Planning ahead by preparing essential estate documents, such as a will and power of attorney, can ease some of the burdens during this painful period.
Adding life insurance to this planning is a compassionate step that provides financial security, offering peace of mind that your family will be protected financially if something were to happen to you unexpectedly. It’s a thoughtful way to show care for those you love, even in your absence, making a challenging time a little bit more manageable.
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