A power of attorney (POA) is a legal document in which the principal (you) designate another person (called the agent or attorney-in-fact) to act on your behalf to make all decisions, in specified matters or in all matters.

Special circumstances may trigger the need for a POA for any person over the age of 18. For example, military personnel may create a POA before they deploy overseas, leaving behind their families, so that someone can act on their behalf should they become incapacitated.

Incapacity isn't the only reason you might need a POA. Younger people who travel a great deal might set up a POA so that someone could handle their affairs, especially if they have no spouse to do so in their absence.

However, the most common time to establish a POA comes with advanced age, usually in retirement.

Setting Up a POA

Here's how it works: You select someone you trust to handle your affairs in case of an emergency. You could establish a POA that only happens when you are no longer capable of handling your affairs yourself – or one that goes into effect immediately so your agent can act for you in your absence. Your spouse, by the way, does not automatically have your power of attorney over property that is in your name only.

POAs are not just reassuring; they may become the instruments that protect your financial and realty interests, your health and even your manner of dying. If you are incapacitated and have no POA designee to take the wheel, your family will likely be forced into costly and time-consuming delays.

What Happens If You Lack One

People have to set up a POA for themselves. A family can't "get" a POA when they suddenly realize that Great Uncle Albert can't handle his affairs. If Uncle Albert didn't have the foresight to set up a POA himself, a court will have to appoint a guardian or conservator. And when a court does this, neither Uncle Albert nor his family has any control over who is appointed.

In some states, the guardian is required to post a bond and file a detailed inventory and accounting of the person's relevant assets. The entire affair is more complicated, more costly – and more public – when a POA is not already in place.

POAs differ depending on when you want the authority to start and end, how much responsibility you want to give your agent, and laws and requirements in the state where you live. There is no uniform POA common to every state.

A Will Is Not a POA

Do not expect your will to serve as a substitute. Wills designate the distribution of your property after death. POAs support the continuation of critical financial and/or health-related decisions that you would want or need to be made if you are unable to make them yourself.

Signing a POA does not deprive you of control over your personal affairs. It is a contingency document that becomes a powerful instrument only when it is needed. There are several types, as well as various degrees of responsibility that you can delegate.

A conventional POA starts when it is signed and continues in force until you become mentally unable to make coherent decisions. It is important to state exactly what authority you are giving your agent. For example, you could give your attorney only the power to sign a deed of sale for your house in your absence (this is called a "limited power of attorney" and also is commonly given to money managers). Or you could specify a much broader range of powers, such as access to your bank accounts (what's known as a "general power of attorney").

A durable POA begins when it is signed but stays in effect for a lifetime unless you initiate the cancelation. Words in the document should specify that your agent's power should stay in effect even if you become incapacitated. Durable POAs are popular because the principal can manage affairs easily and inexpensively.

A springing POA comes into play only when a specific event occurs – your incapacitation, for instance. A springing power of attorney must be very carefully crafted to avoid any problems in identifying precisely when the triggering event has happened.

A medical POA, or durable power of attorney for healthcare decisions, is both a durable and a springing POA. The springing aspect means that the POA takes effect only if specific conditions take place. As long as the principal is conscious and of sound mind and body, the medical POA will not be triggered. Some medical POAs are written to end when the principal recovers from the incapacitating condition.

You can have a Living Will in addition to a healthcare POA. A living will usually addresses specific issues and wishes related to medical treatment if you have a terminal condition, or to dying (such as the extent to which lifesaving measures should be used). A living will may not deal with other important medical issues, however, such as whether you would decline dialysis or a blood transfusion. These are the kinds of concerns that can be directly articulated in a durable power of attorney for healthcare decisions .

Who Should Have Your Power of Attorney?

The risks of naming someone your agent or attorney-in-fact through a POA are obvious. It must be someone you trust without hesitation. Depending on how you worded your POA, the person you select will have access to your bank account, securities, house and personal property. Everything.

In this respect, it is useful to contact each institution you do business with to be certain that your POA authority will be honored. Some banks and investment institutions have their own forms to complete.

The Bottom Line

Anyone can set up a power of attorney. One way is to find a template online that satisfies the requirements of the state in which you live, and execute it properly (it will need to be notarized and you may need witnesses). Given the legal complexities, however, it may be prudent to have an attorney draw up your POA, especially if you plan to have both a medical and a regular durable POA.

To set up a legally binding power of attorney, the principal must have sufficient mental capacity when the document is drawn up. This means that he or she must fully understand the nature and effect of the document.

POAs can be canceled or revoked at any time simply by destroying the original document and preparing a new one, or by preparing a formal revocation document informing all concerned that the POA is no longer a valid instrument. Again, here is where an attorney may be useful.

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