A Power of Attorney (POA) is a legal document that gives someone you trust the authority to act on your behalf. There are several types of POA, each designed for different situations and providing different levels of authority. Choosing the right type is essential for ensuring your affairs are handled according to your wishes.
A General Power of Attorney grants broad authority to your agent (also called an attorney-in-fact) to handle virtually all of your financial and legal affairs. This includes managing bank accounts, buying and selling property, filing taxes, managing investments, and conducting business transactions. A general POA is useful when you need someone to manage your affairs comprehensively, such as during an extended absence.
A Limited (or Special) Power of Attorney grants authority for a specific purpose or time period. For example, you might create a limited POA allowing someone to sell your house while you're overseas, sign documents at a real estate closing on your behalf, or manage a specific business transaction. The authority ends when the specific task is completed or the specified time period expires.
A Durable Power of Attorney remains in effect even if you become mentally incapacitated. Without the 'durable' designation, a standard POA automatically terminates if you become unable to make decisions for yourself—which is often exactly when you need someone to act on your behalf. A durable POA is a critical estate planning document that everyone should consider.
A Springing Power of Attorney only takes effect upon the occurrence of a specified event, typically your incapacitation. Unlike a durable POA (which is effective immediately upon signing), a springing POA lies dormant until triggered. While this may seem preferable, springing POAs can create practical problems—there may be delays in proving the triggering event, which can prevent your agent from acting promptly when needed.
A Healthcare Power of Attorney (also called a Healthcare Proxy or Medical Power of Attorney) authorizes someone to make medical decisions on your behalf when you're unable to do so. This is different from a living will, which expresses your treatment preferences directly. A healthcare POA gives your agent flexibility to make decisions about medical situations you may not have anticipated.
Financial and healthcare powers of attorney can be combined in a single document or kept separate. Many advisors recommend separate documents because the skills needed for financial management differ from those needed for medical decision-making, and you may want different people serving in each role. You can also name successor agents who step in if your primary agent is unable or unwilling to serve.
When creating a POA, choose your agent carefully—this person will have significant power over your affairs. Select someone you trust completely, who is organized and responsible, who understands your values and wishes, and who is willing and able to serve. Discuss your expectations with them before finalizing the document. Review and update your POA periodically, and ensure your agent has access to the document when needed.
