A power of attorney, or POA, can be a powerful tool when you’re planning for the future. At its basic level, a power of attorney gives one or more persons the power to act on another’s behalf, according to the American Bar Association. There are a number of circumstances in which a power of attorney can be used, from financial decisions to those concerning medical care.
The primary parties in a power of attorney are the principal and the agent. A principal is the person for whom the decisions will be made. The agent, or the attorney-in-fact, is the person appointed to act on the principal’s behalf.
A power of attorney should be created to make specific financial or medical decisions that need to be made on behalf of the principal, said Stuart Furman, an elder law attorney and author of The ElderCare Ready Book. To help avoid pitfalls, Furman advised seeking the aid of a lawyer when drafting a power of attorney for your loved one’s unique circumstances.
Read on for answers to some of the most frequently asked questions about powers of attorney, and learn the truth about four common misconceptions.
In this article:
Misconception #1: Mentally incompetent people can appoint a power of attorney
Someone cannot appoint a power of attorney (or sign any legal document) if they are mentally incapacitated. This is one of the most common misconceptions about the power of attorney, according to Furman. A person who is legally incapacitated lacks the physical or mental abilities to manage his or her own personal care, property, or finances, according to the Legal Information Institute at Cornell University. “So many times I get a phone call from someone who says, ‘I just got certification from my dad’s doctor to state that he is not competent, so can I have you do a power of attorney and living trust for him?’” Furman said. Contrary to popular belief, only a mentally competent individual can legally appoint a power of attorney agent for themselves. Only a mentally competent individual may sign a legal document. Mental incompetence is defined as a person’s inability to make informed decisions. In The ElderCare Ready Book, Furman writes: “One needs to be competent to execute legal documents. Once Dad lacks legal capacity, then he can no longer sign any legal documents, including a power of attorney or living trust, which was intended to be used if Dad became incompetent. The only recourse is then a conservatorship or guardianship proceeding through the court, which is a very costly and time-consuming process.” Misconception #2: You can find a power of attorney document on the internet
While power of attorney forms may be found online, using them is discouraged. “People should stay away from the internet, and with the assistance of an attorney, have a power of attorney custom-drafted for your circumstances,” Furman advised.
A power of attorney document should be created with intention to address the specific circumstances and needs of the principal.
Power of attorney documents from unknown sources on the internet may not cover everything, like:
the legal requirements of your state
tailored details appropriate to your situation
up-to-date details or specific instruction
the appropriate authority
“If a power of attorney is ambiguous, it is ripe for challenges and interpretations,” Furman said. “Estate-planning documents are the most important documents a person will ever sign. They should not be bought on the cheap from an untrusted source.” Misconception #3: A power of attorney grants an agent the right to do what they please with your estate
A power of attorney doesn’t grant full financial rights to a principal’s assets. “Just because it says you have the power to do something doesn’t mean you have the right to do it,” Furman explained. “If the action is not in the best interests of the principal then, despite having the power to act, you do not have the right to act.” By law, an agent has a fiduciary obligation to make financial decisions that are in the best interests of the principal. “It’s important that people understand that this fiduciary obligation is not stated in the power of attorney, and it doesn’t need to be, because it is implied by law,” Furman said. Furman emphasized the importance of appointing someone you trust as your power of attorney agent and advised that you should choose someone dependable who has integrity — especially if their authority will extend after you are incapacitated. Misconception #4: There is one standard power of attorney
There are several types of powers of attorney to help accommodate the specific circumstances of the principal. For this reason, a power of attorney should be drafted by an experienced lawyer to ensure that it covers the principal’s unique situation.
The following are the most common power of attorney types:
General power of attorney
Limited or special power of attorney
Durable power of attorney
Health care advance directive
What is a general power of attorney?
General powers of attorney all terminate if the principal dies or becomes incapacitated — meaning that the agent can legally engage in business on behalf of the principal until the principal dies, is mentally incompetent, and/or can no longer make informed decisions independently. The rules governing a regular or general power of attorney vary from state to state. However, the guiding rule of thumb is that an agent’s powers should be explicitly detailed in the document. “In California, if certain powers are not expressly written in the general power of attorney then they don’t exist,” Furman explained. “Even with a ‘catch-all’ clause in the document, such as a phrase saying ‘all other powers are granted,’ certain powers still don’t exist unless they are specifically written in.” What is a limited or special power of attorney?
By design, a limited or special power of attorney limits the agent’s authority to specific powers that are written into the document. For example, a limited power of attorney could be drafted only to grant the power to conduct a single real estate sale. The scope of a limited power of attorney is specific, especially when it’s custom-drafted. It is the responsibility of the agent to thoroughly understand the power of attorney document and the authorities granted regarding the principal’s affairs. What is a durable power of attorney?
A durable power of attorney can withstand the mental incapacity of the individual — but not their death. A durable POA allows the agent to continue to act on the principal’s behalf, even if the principal is mentally incompetent. This authority is often granted to trusted agents who can manage the stress of end-of-life care decisions.
There are two types of durable powers of attorney:
A currently effective durable power of attorney becomes effective when it is signed by the principal and continues even after the principal becomes incapacitated.
The springing durable power of attorney is contingent upon a predetermined event as specified in the document, for the powers of the agent to “spring” into effect. “It is a valid legal document on the date of signing but the powers don’t exist until the contingency is satisfied,” Furman explained. “In the estate planning context, this contingency is most often mental incompetency of the principal.”
The durable power of attorney was initially created to address the legal complications that may arise if the principal becomes mentally incompetent. Similar to other powers of attorney, a durable power of attorney terminates when the principal dies. What is a health care advance directive?
A health care advance directive (HCAD) is a type of power of attorney that allows an agent to manage health decisions should the principal become incapacitated. That is not to be confused with a physician’s order regarding life-sustaining treatment (POLST), which is not a power of attorney. A POLST is a simple directive for doctors and first responders who need to know the principal’s resuscitation wishes, whereas an HCAD allows for many health care decisions to be made by an agent. Conclusion: Consult with a lawyer
Once the principal has passed away, the authority granted to the agent under the power of attorney terminates. It should be noted that many powers of attorney (with the exception of the durable POA) also terminate when the principal becomes incapacitated. When it comes to drafting a power of attorney, utilizing the services of an experienced lawyer is essential. In addition to the different state laws governing powers of attorney, there are numerous variations of the POA documents themselves. “There are a lot of traps for the unwary,” Furman said. “Due to mental incapacity, when problems with a power of attorney are discovered, it is usually too late to do anything about it.” Sources: American Bar Association. Estate planning FAQs. Wex Legal Encyclopedia. Incapacity. Cornell Law School Legal Information Institute. Furman, S. (2022, April 11). Personal communication [Email interview]. Furman, S. (2015). The eldercare ready book. Wheatmark.
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