With so many loan options out there, it’s easy for a first time buyer to be overwhelmed. Traditionally, the often-repeated phrase is to save 20% before buying your first home. But with loans such as the FHA loan offering as low as 3.5% down, is 20% still necessary? Even conventional loans like the 30-year fixed only ask for a minimum of 5%. So what’s the benefit of saving the entire 20%?
In a previous article, we reviewed some frequently asked questions about the function and purpose of a power of attorney. But it’s important to note there are different types for different purposes. Main types include: general, limited, health care, durable, and springing, all of which will be explained here. However, there are other types of powers of attorney, including: financial, care and custody of children, sale of real property, and sale of automobile or other vehicle.
General Power of Attorney
A general power of attorney is typically used to allow your agent to handle your affairs during a period of time when you are unable to do so. For example, when you are traveling out of the state or country or when you are physically or mentally unable to handle your affairs. A general power of attorney is often part of an estate plan as well.
Powers usually include the ability to:
- Buy and sell property
- Buy, manage or sell real estate
- Handle banking transactions
- Enter safety deposit boxes
- File tax returns
- Tend to government benefits
- Enter into contracts
- Purchase life insurance
- Settle claims
- Exercise stock rights
The following are optional powers that can be granted to your agent:
- Maintain business interests
- Make transfers to revocable living trusts
- Hire professional assistance
- Make gifts
Limited Power of Attorney
A limited or “special” power of attorney authorizes your agent to act on your behalf only in specific situations. For example, you may be traveling outside the state or country, or may be unable to handle your affairs because of other commitments.
Common special powers of attorney include the ability to:
- Make financial decisions
- Manage business interests
- Handle banking transactions
- Make estate planning decisions, including gifts
- Enter safety deposit boxes
- Handle government issues and U.S. securities transactions
- Collect debts
- Borrow money
- Sell, manage or mortgage real estate
- Sell personal property
Health Care Power of Attorney
A health care power of attorney allows your agent to make health care decisions on your behalf if you are unconscious, mentally incompetent, or unable to do so. Having this document doesn’t forfeit your right to give medical direction to your doctors when you’re able to do it yourself. It only becomes effective when you don’t have that capacity.
Perhaps you are wondering how mental competence is determined.
In general, a doctor will consider whether you have an understanding of what is covered by the power of attorney, and whether you can make and communicate rational choices. In your document, you can name a doctor whom you wish to make that determination, or, you can require that two licensed physicians agree on your mental capacity. Most organizations won’t allow your agent to act on your behalf without a doctor’s confirmation.
Many people choose to have both a living will and a health care power of attorney. You may already have a living will, but note that it is different. A living will lets a doctor know the types of medications you would want, but it does not authorize anyone to make decisions for you (such as keeping or taking you off life support). Therefore, it makes sense to also have a power of attorney document.
Remember to always keep the original power of attorney for health care. Give a copy of the form to your agent, and send copies to your doctor and your health insurance company, to be kept as part of your medical records.
Durable Power of Attorney
Unless a power of attorney is made “durable” by specific language in the document, your agent can only exercise a power that you are able to do. For example, if you’re in a coma, and can’t sign a contract, your agent can’t sign for you either. So language matters!
All of the types of powers of attorney can be made durable. However, a durable one, whether it’s general, limited, or for health care, may allow your agent to carry out the powers you granted, whether you have a disability or not. As a result, it is possible for your agent to do things on your behalf behind your back, so it’s important to pick someone trustworthy! As an added precaution, you could specify that the power of attorney would not go into effect unless a doctor declares that you are mentally incompetent.
Springing Power of Attorney
An alternative to creating a durable power of attorney is a springing power of attorney. Since some people are not comfortable granting someone else power while they are healthy, the power in this document only takes effect upon a specified event, condition or date.
However, it’s important to note that there are potential problems with this document as well. Since there has to be a formal determination of incapacity before the power of attorney can be accepted, there may be disagreement about the degree of disability. This in turn, can cause a delay in your agent’s ability to act on your behalf. Springing power of attorney is not accepted in all states and may actually end up playing out in court, which can be rather expensive.
As you can see, the various types of power of attorney have a specific function and purpose depending on your needs. Consult a lawyer to determine the best type of power of attorney for you. Think about the person or organization you would like to designate as your agent or attorney-in-fact, and have a back up plan if that person or organization is incapable or refuses to accept their role.