Power of Attorney (POA): Meaning, Types, and How and Why to Set One Up

A Power of Attorney (POA): What Is It?

A power of attorney (POA) is a legal document that grants the agent, also known as the attorney-in-fact, the right to act on behalf of a person known as the principal. The agent’s decision-making power regarding the principal’s assets, money, investments, and health care might be granted in a broad or restricted manner.

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POAs may deal with money matters or medical issues. Both grant the attorney-in-fact broad or specific authority.

The Functions of a Power of Attorney (POA)

A power of attorney is a legal instrument that binds both the principal and the agent, also known as the attorney-in-fact. It is employed when a principle becomes ill or disabled, whether temporarily or permanently, or when they are unable to sign legal papers. The paperwork must be signed by both parties, and it is typically necessary for a third party to witness it.

As long as the principle maintains a sound mental condition, the majority of POA documents permit the agent to act on behalf of the principal in all property and financial concerns. In the event that the principle is unable to make decisions for themselves, the agreement will immediately terminate.

A power of attorney may terminate for a number of reasons, including the principal’s revocation or death, the agreement’s invalidation by a court, or the agent’s inability to perform the duties specified in the document. If the principle and the agent in a married pair are divorced, the permission might be void.

Making a power of attorney assures that someone will handle your financial matters in the event of your incapacitation, which is one of the many beneficial reasons to do so. However, approving a POA that gives an agent unrestricted authority is akin to writing a blank check.

Powers of Attorney Types

When a durable power of attorney is signed, it becomes operative and continues in the event that the principal becomes incapacitated. A springing power of attorney only takes effect in the event that the principal is rendered incapable of doing so. In order to give the agent the ability to make important choices on behalf of an incapacitated individual, a power of attorney may also be restricted to just medical concerns.

Financial and health care POAs are the two main categories.

Power of Attorney for Health Care (HCPOA)

If the principle wishes to provide an agent the authority to make decisions regarding their health, they can sign a durable health care POA (HCPOA). Another name for this document is a health care proxy. It expresses the principal’s approval to provide the agent power of attorney in the case of an unfavorable medical circumstance. When the principle is unable to make choices regarding their health on their own, this POA comes into effect.

Monetary Power of Attorney

When and if the principle loses the ability to comprehend or make choices for themselves, a financial power of attorney (POA) enables an agent to handle the principal’s business and financial affairs, including signing checks, filing tax returns, depositing Social Security payments, and managing investment accounts.

To the extent that the agreement specifies that the agent is responsible, the agent should use reasonable efforts to carry out the principal’s intentions. A financial power of attorney (POA) can grant the agent extensive control over the principal’s bank account, allowing them to sign cheques, make deposits and withdrawals, and designate new beneficiaries or modify existing ones.

Financial POAs fall into a number of areas.

POA for General Power

Insofar as state law permits, this POA gives the agent the authority to act on behalf of the principal in all situations. Under such an arrangement, the agent could be able to manage assets, sell real estate, sign checks, handle bank accounts, and file taxes on behalf of the principal.

restricted POA

The agent may act on behalf of the principal in certain situations by using a limited power of attorney.

It may specifically say that the agent is solely allowed to handle retirement funds for the principal. This kind of POA could be in force for a set amount of time. If the main will be abroad for more than a year, the authorization may only be valid for that period of time.

A durable power of attorney

When a principal becomes mentally incapable, a durable power of attorney (DPOA) maintains jurisdiction over certain specified legal, property, or financial affairs. While a durable power of attorney (DPOA) can cover medical expenses for the principle, it cannot make decisions regarding the principal’s health, such as removing life support.

Activating a Power of Attorney

A “springing” power of attorney is a document that lays out the circumstances under which a durable power of attorney may take effect. The type of occurrence or degree of incapacitation that must take place prior to the DPOA springing into force is specified by a springing POA.

Until a detrimental event occurs to one’s health, a power of attorney may stay dormant. It is important to properly craft a springing power of attorney to ensure that it is easy to determine whether or not the triggering event has occurred.

How a Power of Attorney is Establish

A POA template may be purchased or downloaded, but be sure it is appropriate for your state since laws vary. Although all 50 states accept some type of durable power of attorney, there isn’t a single standard POA form.

Certain important abilities are not transferable, such as the ability to create, modify, or annul a will or, in most states, enter into a marriage contract, but few do permit this. It is not possible to provide voting authority; however, the guardian may submit a ballot request on the principal’s behalf.

Certain laws are typically applicable in all states and legal systems.

Write It Down

Although verbal teaching isn’t a dependable alternative for writing down the terms word for word on paper, certain parts of the nation accept oral POA grants. Clarity in writing later on helps to prevent disagreements and misunderstandings.

Make Use of the Correct Format

Make a distinct Power of Attorney (POA) for each authority you wish to award. The POA needs to meet your state’s criteria as well. To locate a form that will be recognized by a court of law in your state, conduct an online search or contact a nearby estate planning expert. Getting legal counsel is the best course of action.

Assign Authority

Even if the principle offers the agent a general POA, each authority conferred must be made explicit. A POA can be as wide or as narrow as the principal desires. A broad, general power such as “I delegate everything having to do with my life” cannot be granted by the principal.

Indicate Durability

In most states, a POA expires if the primary becomes unable. If this occurs, the only way an agent may maintain their authority is if the POA is drafted with a durable indication. Unless the principal revokes it, this designation is valid for the principal’s whole lifespan.

Sign the Power of Attorney.

Most states require notarization of powers of attorney. Even in jurisdictions where it is not required, having a notary’s seal and signature on the document may make things easier for the agent.

Put the POA in file.

Check the laws in your area to see if any particular type of POA has to be filed with a court or government agency in order for it to be deemed enforceable. Any POA utilized in Ohio to provide grandparents guardianship over a kid has to be submitted to the juvenile court. In addition, the county where the property is located must register a POA that transfers real estate.

While not all powers of attorney need to be properly registered or filed, many estate planners and others who wish to make a record of the document’s existence follow this common procedure. To be safe, file it with your county or state.