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Power of attorney: Know the types and how to draft a form

Robyn Correll
July 6, 2018

A power of attorney (POA) form is a legal document saying you’re granting someone else (the attorney-in-fact) the power to act on your behalf. The biggest benefit to creating a POA is that it allows you to choose who you want to represent you if you’re unable to manage your affairs on your own, rather than having a representative chosen for you.

POAs are commonly used by aging adults as part of their general estate planning to designate a specific representative to manage their personal, medical or financial decisions as they age. However, there are many cases where a POA can help you protect your health, finances and other affairs, even if you still have years to go before retirement.

When should you have a POA form?

POA documents can be helpful in any number of situations, and you may want to consider one if you:

  • Leave the country frequently or expect to be difficult to reach for any amount of time while traveling.  

  • Are getting older and want to make sure you have a designated representative to handle your affairs.

  • Have minor children or other dependents (such as an aging parent or grandparent for whom you have guardianship) and want to ensure they are cared for in the event you become incapacitated or can’t be reached.

  • Are in the process of getting a divorce.

  • Own a business or property that you’d like maintained in the event you are incapacitated.

  • Are diagnosed with a serious medical condition that will lead to your incapacitation and will need help managing your affairs.

This is only a sampling, however. Many experts agree POAs are something all adults should consider.

“Anyone over the age of 18 should consider having a power of attorney in case of an emergency,” says Adrienne Bond, a licensed practicing attorney in Minnesota. “Though it is something that is often considered later in life, you never know when you might be unable or unavailable to manage your affairs. It is important to have these documents in line before something happens.”

POAs are only valid if they are signed when you are still of sound mind, Bond warns, so if you wait until you’re already incapacitated, it will be too late.

What are the different types of POA?

There are two major factors to consider when deciding on a POA form: timeframe and scope. All POAs must be initially signed while you are of sound mind, and they are terminated upon your death. But when an agent can do things on your behalf, including whether the attorney-in-fact can act after you are incapacitated, must be laid out.

There are three primary types of POA timeframes: ordinary, springing and durable.  

1. Ordinary: An ordinary POA is valid while you are of sound mind and becomes void if you become mentally or physically incapable of making decisions on your own. This type of POA may be useful for transactions, such as business deals, where a permanent change in your mental capacity is likely to change the circumstances that drove the creation of the POA.

2. Springing: A springing POA comes into effect only after a specific triggering event, like mental incapacitation due to accident or illness. This is often used for health and end-of-life decisions. These documents must be carefully worded so that it’s clear what events cause the POA to “spring” into effect. Ambiguity will require action by the courts to resolve whether the POA has gone into effect or not. For example, a springing POA for mental incapacity should state how incapacity is to be determined, such as an evaluation by two licensed mental health professionals.

3. Durable: A durable POA continues to be valid even in the event you become incapacitated or mentally incompetent. This is appropriate in matters such as healthcare decisions and end-of-life finances, where your potential incapacity is part of the purpose of the POA.

In addition to an established time frame, a POA also has a designated scope. This scope clarifies what the attorney-in-fact is legally allowed to do in your name. The two main POA scopes are general and specific POAs, with the latter accounting for a wide variety of narrowly focused subtypes.

1. General: A general POA gives broad powers to your attorney-in-fact to manage all of your affairs and properties, including making financial decisions. This is a position of significant trust. A general POA grants the attorney-in-fact authority to perform most legal activities as if they are you, such as signing contracts, paying bills and making investments. This places a fiduciary duty on the attorney-in-fact to act in your best interests, but will not create liability for inadvertent errors or mistakes. It is important to select a person who is responsible and will take seriously their duty to represent your interests. A general POA may be limited by specific laws or regulations requiring you to be present in person for particular transactions or by state laws dictating the scope of all general POAs. For example, the state of California only grants the attorney-in-fact those powers which are explicitly listed in the general POA document.

2. Specific: POA forms can also be written only for a specific purpose and with a limited scope. Some of the more common types of specific POAs include:

  • Business: If you’re a business owner, a business POA could designate an agent to make personnel decisions, be a proxy at meetings or approve budgets while you’re away.

  • Financial: Under a financial POA, your agent could be granted the ability to open or close accounts for you, pay or cancel bills or make financial transactions from your accounts. Note: Your bank might have a specific POA form or guidelines it wants you to follow, so be sure to check with your local branch before creating your own.

  • Legal: A legal POA could grant an agent the power to take legal actions on your behalf such as sign divorce papers, talk to your lawyer, file documents with a court or commence lawsuits.

  • Limited: In the event of a special circumstance where you only need someone to act on your behalf for a very specific transaction, you can establish a limited (also called “special”) POA to allow your agent to step in for you just that once.  

  • Managing Assets: In the case of a living trust, a POA can be set up to allow the successor trustee (or co-trustees) to manage or transfer assets that weren’t explicitly mentioned in the living trust document.

  • Medical: A medical POA allows someone else to make healthcare decisions for you when you are unable to do so because you are in surgery, unconscious, on strong medications or you are no longer mentally capable to make such decisions on your own. (More on this below.)

  • Minor Child(ren): If you have children under the age of 18, establishing a minor child(ren) POA can help ensure your dependents are cared for in the event you are unavailable due to traveling or an unexpected incapacitation.  

  • Real Estate: If you own or would like to acquire real estate, a real estate POA can give someone else authority to collect rent or buy, sell or manage your property or properties while you are out of town or otherwise unavailable.  

  • Tax: A tax POA is helpful if you want your attorney to be able to access your tax records and/or file your taxes on your behalf.

  • Vehicle: A vehicle POA can designate someone to register a new vehicle or obtain a new title on your behalf. Be sure to file the POA with your local department of motor vehicles once its signed.

This is by no means an exhaustive list. Because POAs can be catered to your needs, the possible areas covered by the documents are as diverse as the people who sign them.  

More on POA for healthcare

Among the most frequently used POA forms is a POA for medical or healthcare decisions. These documents can be particularly important to establish early because you have to be of sound mind when they’re signed. If you wait until you’re already incapacitated due to a serious medical condition or sudden injury, it will be too late for you to designate an agent.  

“Although we first think of elderly or dying persons as those most in need of a substitute decision-maker, adults of all ages should consider and document their answer to this question: ‘If I am too ill to think or speak for myself, who do I want to speak for me?’” says Jo Kline, a retired attorney who now writes and speaks about the legal aspects of medical decision-making.

Kline also recommends naming an alternate agent who can intervene in case your primary attorney-in-fact (such as your spouse or adult child) is incapacitated along with you, but she discourages the use of “co-proxies,” as disagreements among agents could result in no-decision standoffs.

In some states, you can combine a medical POA with a living will to make a more comprehensive healthcare directive. Together or separate, however, it’s a good idea to file a copy of the signed form with your health insurance company and any medical institutions you might need to go to.

How do you choose an attorney-in-fact?

An “attorney-in-fact,” also sometimes referred to as the “agent,” is the person (or people, if you want to designate more than one) you are giving authority to act on your behalf. This person can be anyone you choose, as long as they are over the age of 18, including your spouse, family member, friend or business partner.

If you want multiple people to serve as attorneys-in-fact, you can do that — but it’s important to be clear in the form about what specific authority is granted to whom and when.  

“While it can be useful to have multiple or successor attorneys-in-fact — in case one of the attorneys-in-fact is unavailable or becomes incapacitated themselves — it is important to distinguish whether they can act independently or need to act jointly,” says Bond. “Having a requirement for more than one individual to act jointly may be beneficial on some transactions and prevent abuses, [but] it can also create problems if time is of the essence and one of the attorneys-in-fact is unavailable.”

Regardless of whether you choose one person or multiple to list on your POA, the role of an attorney-in-fact shouldn’t be taken lightly. Before signing, you should talk to potential candidates to make sure they are on board and if they are comfortable accepting the responsibility. If you choose to have a professional act as an attorney-in-fact, such as a lawyer or accountant, be careful to discuss any fees ahead of time so you’re clear on how much they would charge you for their services while acting on your behalf. Likewise, the person or people you select as your attorney(s)-in-fact should live near you and/or be able to step in on short notice if you become unexpectedly unavailable.

The most important thing, however, is that you choose someone you can trust. This is especially crucial for POAs that are in effect while you are incapacitated, when you are at your most vulnerable. Your agent should be someone who you are certain will act in your best interests, even under stress.

If you later decide you want to change attorneys-in-fact, you can do so, as long as you’re still of sound mind. Be sure to check in with your state’s laws to verify what legal steps need to be taken to revoke an agent’s status as your proxy.

Things to consider when choosing an attorney-in-fact

  • Trustworthiness - Can you trust them to act in your best interest, even if you are incapacitated or unavailable for consultation?

  • Proximity - Do they live nearby?

  • Availability - Will they be able to step in at a moment’s notice, if necessary?

  • Temperament - Will they be able to stay calm under pressure to fulfill your wishes even if they’re stressed or experiencing pushback from loved ones?

How do you create a POA document?

What you include in your POA document can vary, depending on the type of POA it is, how specific you want to be and where you live. Some states require that POAs meet specific requirements in order to be valid, so check your local laws first to verify what you need to include. Many states have a simple form you can adapt to meet your needs.

Generally speaking, however, a POA document should include at least the following:

  • Principal: The individual who is granting authority to someone else to act on his or her behalf.

  • Attorney(s)-in-fact: The person or people being granted that authority.

  • Powers granted: What the attorney-in-fact is authorized to do on behalf of the principal.

  • Activation: When the POA is to take effect. For example, a durable POA can become effective immediately, whereas a springing POA might only become valid once the principal is incapacitated. In this case, what constitutes as “incapacitated” should be clearly spelled out in the POA.

  • Duration of the POA: When the attorney-in-fact is authorized to act on behalf of the principal. If the POA is meant to stay in effect even after the principal is incapacitated, this should be spelled out clearly in the document.

  • Gifting Authority: Whether the attorney-in-fact is authorized to make gifts of the principal’s assets. If so, define the monetary limits of any gifts, as well as who is or isn’t eligible to receive them.

  • Expiration date: This is optional but important if you’d like the POA to become invalid after a specific date or event.  

  • Signatures: The document should be signed by the principal, attorney(s)-in-fact, two witnesses and, in some cases, a notary public or public official.

Can you have multiple POA documents?

You can have multiple POA forms active at the same. In some cases, it may even be beneficial to have multiple POA documents, as different states often have different requirements or criteria, depending on the powers granted to your attorney(s)-in-fact.

Jonathan DeWald, an attorney in Pennsylvania who focuses on estate planning and elder law, says he generally recommends clients have two POA-type documents: a durable POA for financial affairs and a healthcare directive (similar to a springing medical POA) in the event the person becomes incapacitated.  

“Keeping the durable power of attorney and the advance healthcare directive ​separate ​allows the principal to select different agents for making healthcare decisions and handling finances,” DeWald says.

One example DeWald gives is when a client has multiple children but only one of them is prudent with financial affairs. In that instance, it could be helpful to name one child (acting alone) as the agent in a durable financial POA, while all of the children (acting jointly) are listed as agents in a medical POA.

Note: A single POA signed in one state should work in any other. To be safe, however, it might be a good idea to have a POA (or multiple nearly identical POAs) that complies with the laws in each state where you or the principal spends a considerable amount of time. For example, if someone lives in New Jersey but spends three months of the year in Arizona, it could be useful to have a POA form for each state that meets the location’s specific criteria.

Do you need a lawyer to draft a POA form?

While the Uniform Power of Attorney Act provides states with a framework they can adopt for consistent POA laws, significant variations do exist from state to state. Your particular circumstances may also merit unique language. Hiring a lawyer to draft your POA is the best choice. This ensures your POA is appropriate, enforceable and will be respected by counterparties to the greatest extent possible. If you do choose to forego professional legal help, you should at minimum find a POA template that was written for your state. An online legal document company may be a reasonable compromise if your POA is a routine type.

What should you do with a POA once it’s signed?

In many states, a POA need only be signed by two adults and/or notarized to be valid, but some might require you to file your POA with a local court or land records office.

Regardless, you’ll want to send a certified copy to any relevant institutions to let them know about the POA and what your agent(s) will be allowed to do on your behalf. For example, if you have a financial POA that allows your attorney-in-fact to withdraw funds, make financial investments, or sign checks, you should send a certified copy of the POA to your bank and verify it meets their needs, in order to make the process as smooth as possible for your agent if or when the time comes.

You should also discuss the document with your attorney(s)-in-fact to make certain they understand your wishes — and not just for healthcare POAs.

“Have a discussion with the individual or individuals that you want to appoint and make them aware of your goals and expectations,” DeWald says. “While the written instrument gives them the necessary authority to act, it is always helpful to supplement that document with an instructive conversation.”

If at any point you decide you no longer want or need a POA, you can revoke it by following guidelines outlined in laws in your home state. In many cases, POAs may be voided by sending a letter to your attorney-in-fact and collecting or voiding all copies of your POA, including any you’ve sent to outside organizations, offices or institutions.

Sample power of attorney form

Legal Disclaimer: This form has been adapted using the Minnesota statutory short form of general power of attorney. It is intended to serve as an example and should not be considered legal advice. Before using this form, please consult a licensed legal professional in your home state.  

GENERAL POWER OF ATTORNEY

PRINCIPAL (Name and Address of Person Granting the Power)

Joseph Smith

123 First St.

Minneapolis, MN 55555

ATTORNEY(S)-IN-FACT

(Name(s) and Address(es))

 

SUCCESSOR ATTORNEY(S)-IN-FACT
To act if any named attorney-in-fact dies, resigns or is otherwise unable to serve.

(Name(s) and Address(es))

Dessy Jones

456 Second St.

Minneapolis, MN 55555

 

First Successor:

 

Rashena Jones

456 Second St.

Minneapolis, MN 55555

Second Successor:

 

Jeffrey Smith

789 Third St.

Minneapolis, MN 55555

I, (the above-named Principal) hereby appoint the above named Attorney(s)-in-Fact to act as my attorney(s)-in-fact:

FIRST: To act for me in any way that I could act with respect to the following matters, as each of them is defined in Minnesota Statutes, section 523.24:

  • Real property transactions

  • Tangible personal property transactions

  • Banking transactions

  • Insurance transactions

  • Beneficiary transactions

  • Gift transactions

  • Fiduciary transactions

  • Family maintenance

  • Records, reports and statements

SECOND: This power of attorney shall continue to be effective if I become incapacitated or incompetent.

THIRD: My attorney(s)-in-fact MAY NOT make gifts to the attorney(s)-in-fact, or anyone the attorney(s)-in-fact are legally obligated to support.

FOURTH: My attorney-in-fact need not render an accounting unless I request it or the accounting is otherwise required by Minnesota Statutes, section 523.21.

In Witness Whereof I have hereunto signed my name this 3rd day of June, 2018.

                                                                                                                   ____________________________

                                                                                                                     Joseph Smith, Principal

STATE OF MINNESOTA

COUNTY OF HENNEPIN

The foregoing instrument was acknowledged before me this 3rd day of June, 2018 by Joseph Smith.

                                                                                                          __________________________________

                                                                             (Signature of Notary Public or other Official)

Acknowledgement of notice to attorney(s)-in-fact and specimen signature of attorney(s)-in-fact.

By signing below, I acknowledge I have read and understand the IMPORTANT NOTICE TO ATTORNEY(S)-IN-FACT required by Minnesota Statutes, section 523.23, and understand and accept the scope of any limitations to the powers and duties delegated to me by this instrument.

                                                                                                                _________________________________

                                                                                                                _________________________________

                                                                                                                 _________________________________

Comments
User in Elizabeth, NJ
July 11, 2018

This was an excellent article. I will go ahead and share to my colleagues!

User
March 2, 2011

only wish some people meaning my partner would listen to me pertaining to this. he laughs at me cause i told him i have mine made out along with my will, obituary only thing that hasnt been done is the BIG ONE--funeral arrangements. thank you nancy

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