Losing track of bills, insurance forms, tax filings or other essential paperwork can happen when someone becomes elderly and has even minor memory loss – or if a person faces a serious, more long-term health crisis that cannot easily be navigated. Choosing someone to act for you in your business or personal affairs when you may not be able or available gives you greater control when those circumstances arise: It permits you not only to select, but also to direct the person (in legal parlance, the “agent”) who will act on your behalf. 

To convey such authority, you will need to draw up a power of attorney (POA), a legal document that gives the agent you name the legal power to act for you. “A power of attorney is primarily used as a device for insuring that your directives and decisions in your best interest are carried out, especially if you are no longer able to accomplish these objectives without assistance,” says Martha Kunkis, a New York City attorney with a practice focused on real estate, wills and estates.

What a Power of Attorney Covers

A power of attorney will define what the agent can do on your behalf, and in what circumstances. Some powers of attorney are limited. For instance, the power of attorney could merely empower someone to represent you at a real estate closing in a distant town. Also, note that even when a general power of attorney contains no such limiting language, it usually only operates while the person conveying the power, called “the principal,” has full capacity. However, since most powers of attorney are created to empower an agent to handle a principal’s affairs when that person is not able to do so him or herself, these “durable” powers of attorney should specifically state that the power does not end when a person becomes incapacitated.

A power of attorney does not generally cover healthcare decisions; these require a healthcare power of attorney, often referred to as a healthcare proxy or medical power of attorney.

Help With the Legal Document

States have different requirements for establishing a power of attorney – Pennsylvania’s statute, for instance, makes the legal assumption that a power of attorney is durable. “Check to make sure durability is specifically stated or added to the POA” in your jurisdiction, says Kunkis. Using an attorney to draw up the power of attorney will help ensure that it conforms with state requirements. Since a power of attorney may be questioned if an agent needs to invoke it with a bank or financial services company, you should ask an attorney about their prior experience in drafting such powers. You want to select someone not only familiar with state requirements, but also with the issues that can arise when a power is invoked, so the attorney can use language that will make clear the full extent of the responsibilities that you wish to convey. (For more on the POA document, see Power Of Attorney Form.)

Reasons for a Power of Attorney

Establishing a durable power of attorney prevents a guardianship proceeding, where a court steps in to appoint someone to handle your affairs, if you lose capacity and no such power is in place. This saves time and expense and also protects your privacy.

If you are not able to act on your own behalf due to mental or physical incapacity, an agent may be called upon to make financial decisions to ensure your well-being and care. These may include paying bills, selling assets to pay for your care, to taking steps for the purposes of Medicaid planning. You can detail the scope and extent of what you wish your agent to do in the power of attorney. “The authorization to make real estate or banking transactions, deal with retirement or government benefits as well as healthcare billing and other matters, including family interests, are the most important features of a POA,” says Kunkis. “These powers and others may be expanded or limited according to the needs and intention of the principal.”

Choosing Your “Agent”

Selecting an agent to hold your power of attorney should not be an automatic decision. While many people choose a spouse or other family member, the person you select should understand and agree to the responsibility. “The agent has a fiduciary responsibility solely to the principal,” says Kunkis. “The decision to name an agent should be based on trust, with a view to the agent’s loyalty, business or organizational abilities and time constraints.”

You may name more than one person to act as your agent and ask that they work together. However, bear in mind that they may not always have the same view of what needs to be done. You should also appoint a successor agent, in the event that the agent you originally chose cannot serve in that capacity when the need arises. 

The Bottom Line

Choosing someone to hold your power of attorney and specifying that it will operate even if you lose capacity ensures that you have a plan in place for administering your financial and personal affairs if you are ever unable to do so. This gives you more control over how that process will be handled should the need ever arise. If you move to another state, your power of attorney should remain effective; however, the American Bar Association recommends that you use such a move to update your power of attorney. The power expires upon your death.

For tips for children who want their parents to set up a power of attorney, see When Is It Critical to Set Up a Power of Attorney




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