One of the most crucial steps in planning for your estate and eldercare is establishing a power of attorney. However, there are many misconceptions surrounding this legal document. Contrary to popular belief, setting up a power of attorney is not a complex process, and it is not exclusively for the wealthy. In fact, anyone can create a power of attorney to empower another person, known as the agent, to make decisions regarding finances, property, or medical care on their behalf. The agent does not have to be an attorney or a financial professional. Often, individuals assign power of attorney to a trusted family member or friend. It is also possible to assign co-agents to share the responsibilities.
Different Types of Powers Granted by a Power of Attorney
There are two main types of power of attorney: general and limited.
A general power of attorney grants the agent the authority to act on behalf of the principal in any matters according to state laws. This means that the agent can manage bank accounts and assets, sign checks, buy or sell property, and file taxes on behalf of the principal.
On the other hand, a limited power of attorney only gives the agent authority to act on specific matters or events. For instance, a limited power of attorney might be in effect when the agent needs to manage the principal’s retirement and savings accounts or when the agent will reside in another country for a specified period.
Both limited and general powers of attorney are useful when the principal is unable to sign legal documents due to temporary or permanent disability or illness. Now, let’s take a closer look at other ways that power of attorney can be granted.
A durable power of attorney (DPOA) enables the agent to make decisions concerning specific legal, property, or financial matters. While a DPOA can pay for health-related bills on behalf of the principal, it does not grant the agent the authority to make decisions regarding the principal’s health, such as ending life support.
A medical power of attorney grants the agent the power to make crucial health-related decisions on behalf of the principal.
A financial power of attorney allows the agent to manage the principal’s business and financial affairs. The agent’s responsibilities may include signing and depositing checks, filing tax returns, and managing investment accounts.
Limitations on Agents
The powers of attorney are governed by state laws, which can vary in their requirements and limitations. However, most states follow the Uniform Power of Attorney Act (UPOAA) of 2006, which establishes some standard language and guidelines for powers of attorney. For example, according to the UPOAA, powers of attorney go into effect as soon as they are signed, and they cease upon the principal’s death.
If both your state and another state follow the UPOAA, the guidelines will be accepted and acknowledged across state boundaries. However, it is crucial to check your state’s laws before creating or agreeing to act as an agent for a power of attorney.
A Power of Attorney’s Inability to Change a Will
The only legal requirement for writing a last will and testament is that the person creating it must be of sound mind, and the will must be documented in written form. In most states, it is not necessary to have an attorney prepare, notarize, or witness a will.
As long as a will is valid according to your state’s laws, a power of attorney cannot alter its terms or rewrite it in any way. It is important to note that a will written or revised by a power of attorney is not valid. In most states, the power of attorney ends upon the principal’s death, and at that point, the principal’s legal rights transfer to their estate.
Can a Power of Attorney Influence an Estate?
Although a power of attorney cannot change a will directly, it can impact the circumstances surrounding the will. For instance, an agent with general powers can make decisions that significantly affect your financial situation, potentially jeopardizing the assets you intended to leave to your heirs.
Consider this scenario: You state in your will that you want to leave all of your investments to your son and all of your cash holdings to your daughter, who is also the agent named in your power of attorney. If your daughter, over the last year or two of your life, liquidates all your investments, claiming it is necessary to care for you and cover your expenses, your son may end up with no inheritance. Whether your daughter’s intentions were innocent or not, the outcome remains the same.
Steps to Safeguard Against Abuse by a Power of Attorney Agent
Thankfully, there are measures you can take to protect yourself and your estate from potential abuse by your power of attorney agent. The most critical step is to select someone you know and trust as your agent. Discuss your wishes explicitly with them to avoid any misinterpretation. Additionally, consider the following steps:
- Name co-agents and specify the powers granted to each one. For example, you can name two of your children or a trusted friend and one of your children as co-agents.
- Appoint a third party as an overseer. You can request that your agent provide a written summary of all financial actions to another trusted individual, such as your lawyer or a family member.
- Inform your financial institution and other family members about your chosen agent. When you grant someone power of attorney, it is essential to notify relevant parties so they can remain vigilant for any unusual financial activity.
- Set specific limits on the powers granted. Be precise in your power of attorney documentation to define what your agent can and cannot do. For instance, you can authorize your agent to pay bills and manage bank accounts but prohibit them from changing the beneficiaries of your life insurance.
Remember, life situations change, and so do relationships. You have the right to revoke a power of attorney at any time without providing a reason. If you decide to make changes, creating a new power of attorney is a straightforward process.
In conclusion, a power of attorney is a vital tool in estate and financial planning. When you appoint a trusted individual as your agent, you gain peace of mind that your financial affairs or medical decisions will be handled according to your wishes. Although someone with power of attorney cannot alter your will, they can make decisions that affect your estate. Creating a power of attorney does not have to be complicated or time-consuming.
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Helpful Resources: POA – ABA, Prevent POA Abuse – Kiplinger