What is a Power of Attorney? Why Do You Need One?

What is a Power of Attorney? Why Do You Need One?

Most of us have heard the term “power of attorney” and understand generally what that means. Put simply, a power of attorney is a legal document where you can choose the people you want to have the authority to make financial related decisions for you when you no longer have the mental capacity to do so. A power of attorney can be established in many forms (e.g., limited, general or statutory). This blog post is about the general power of attorney (GPOA) because it is a critical component of your overall estate plan.

The people you designate to make financial related decisions on your behalf in the GPOA are called “attorneys-in-fact” or “agents” depending on the laws of the state where you live.  While you can designate as many agents as you want in a GPOA, it is important to at least have a primary and a contingent agent designated. Factors you may want to consider when you choose your agents could include the following: family relationship; family dynamic; where the prospective agent lives; knowledge of your financial affairs; and, individual characteristics of the prospective agent, such as trustworthiness, honesty, responsibility, and ability to attend to details.

The intent of the GPOA is to allow your agents to act for you in all matters (other than health care decisions or long-term care decisions which are addressed in the Advance Directive (Read the Advance Directive blog post here). In order to ensure the GPOA covers all the situations for which it may be needed, the GPOA is typically ten plus pages and includes a broad array of powers. The laws of most states make it clear that if a power is not specifically included in the GPOA, your agent cannot take that action on your behalf.   

In addition to designating your agents and identifying the powers you want your agent to have, you also get to decide when your agent’s authority under the GPOA becomes effective.  There are typically two options: First, your agent’s authority can become effective immediately upon signing the GPOA. Second, your agent’s authority can become effective when one or more physicians have certified in writing that you no longer have the capacity to make financial related decisions on your behalf.

Finally, by signing a GPOA and designating your agents, you minimize the need for a long drawn out and overly complicated guardianship proceeding that would otherwise be necessary to provide someone with the authority to make financial related decisions on your behalf.  The court will appoint someone based on what the law says, and that person may not be the person you would have chosen for yourself.