When you first hear the term “power of attorney,” it may sound like an all-too-official concept, or something you’ll never need to use. At least, that’s how it seemed to me.
However, when you look at types of powers of attorney, and the ways that it can and may be used, you may find that there are instances in which you will need a power of attorney, or that you have to act as a power of attorney for someone else.
For instance, my mom had a minor surgery on her shoulder a few years ago. My dad was unable to take off work to take her to the surgery. So, before we left, my mom had me sign documents making me a temporary healthcare power of attorney.
Types of Power of Attorney
There are different types of powers of attorney for different purposes.
Some of the main types include: general, enduring, limited, healthcare, durable and springing, all of which will be explained here.
However, there are other types of powers of attorney for very specific purposes, including: financial responsibility, care and custody of children and sale of vehicles. Since these are more specific, we won’t cover them in depth in this article.
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, such as when you are traveling 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.
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 in any way unable to do so.
For example, if a decision needed to be made about my mom’s health care while she was unconscious in surgery, I would have had to make that decision as her health care power of attorney.
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 healthcare power of attorney. You may already have a living will, but note that this 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 medical power of attorney document.
Remember to always keep the original document of your 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 part of your medical records.
Enduring or Durable Power of Attorney
An enduring power of attorney, which is also called a durable power of attorney in the United States, allows your power of attorney to remain in effect even if you are mentally incompetent.
Without the enduring or durable language, your power of attorney agent can only exercise a power that you are able to do too. For example, if you’re in a coma, and can’t sign a contract, your power of attorney can’t sign for you either.
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 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 powers 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 backup plan if that person or organization is incapable or refuses to accept their role. If you have questions about using a power of attorney to buy or sell a house, contact a Home Loan Expert today to get your questions answered!
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