One of the most important steps in estate and eldercare planning is setting up a power of attorney.
Yet, many people have misconceptions about power of attorney, mistakenly thinking that it is a complicated process or that it is only for the very wealthy. Fortunately, neither of these ideas is true.
Power of attorney (POA) is a legal document that gives one person (called the agent) the authority to make choices and decisions about the finances, property, or medical care of another person (called the principal).
The agent need not be an attorney or a financial professional. Many people assign POA to a trusted family member or friend. You also can assign more than one individual to serve as co-POAs.
Under the terms of a POA, the agent can have broad or limited powers, ranging from paying bills to managing the agent’s investments or making decisions about their medical care. However, be aware that something a principal cannot do is change the terms of the agent’s last will and testament.
Read on for more information on what someone can and cannot do when you name them as your agent.
Types of Powers Granted
There are two overall types of POA – a general POA and a limited POA.
A general POA authorizes the agent to act on behalf of the principal in any matters under state laws.
For example, the agent might manage bank accounts and assets, sign checks, buy or sell property, and file taxes for the principal.
A limited POA gives the agent authority to act on the principal's behalf only in specific matters or events.
For instance, this type of POA might allow the agent to manage the principal's retirement and savings accounts.
Or, if the agent will be living in another country for two years, a limited POA might be in effect for that time.
Limited and general POAs can be used when the principal is unable to sign legal documents due to temporary or permanent disability or illness.
Here are other ways POA can be granted.
- Durable Power of Attorney. A durable power of attorney (DPOA) gives the agent the ability to make decisions on specific legal, property, or financial matters. Although a DPOA can pay health-related bills on behalf of the principal, this agent cannot make decisions regarding the principal's health, such as ending life support.
- Medical Power of Attorney. A Healthcare Power of Attorney (HCPA) can give the agent the power to make important health-related decisions on behalf of the principal.
- Financial Power of Attorney. Another type of durable POA allows an agent to manage the principal's business and financial affairs of the principal. Tasks can include signing and depositing checks, filing tax returns, and managing investment accounts.
Limits on Agents
The laws of each state govern powers of attorney, and the state laws can vary in their requirements and limitations.
However, most states have adopted the Uniform Power of Attorney Act (UPOAA) of 2006 and therefore have some uniform language.
For example, the UPOAA stipulates that POAs go into effect as soon as they are signed. The act also states that the POA ends when the principal passes away (§75-9-110).
If you live in a state that follows the UPOAA, then any other state that also follows it will accept and acknowledge its guidelines. You must check your state law before drawing up a POA or agreeing to act as an agent for a POA.
Power of Attorney Cannot Change a Will
The only legal requirement for writing a last will and testament is that you are of sound mind to make decisions and that the will is documented in written form. In most states, a will does not have to be prepared by an attorney, notarized, or witnessed.
As long as a will is valid according to the laws of your state, a POA cannot change its terms or rewrite it in any way. A will written or revised by a POA is invalid. In most states, the POA ends upon the principal's death. At that time, the principal's legal rights transfer to their estate.
Power of Attorney Can Change an Estate
Although an individualwith POA cannot change a will, they can change the circumstances ofa will.
Someone with general powers could make decisions that significantly change your financial situation. These steps could negatively impact the assets you have designated for your heirs.
Here's an example. Let's say that you state in your will that you leave all of your investments to your son and all of your cash holdings to your daughter, who is the heir. You then designate your daughter with POA.
Then, over the course of the last year or two of your life, your daughter liquidates all of your investments, claiming she needs the cash to care for you and pay your expenses.
Whether her intentions were in bad faith or not, your daughter has now effectively left your son with no inheritance.
How to Prevent Abuse from an Agent
Fortunately, there are ways to protect yourself and your estate from abuse by your POA agent. The most crucial step is to name someone you know and trust as your agent.
Then, speak with this person about your wishes so that there can be no mistake or misinterpretation of how you want those wishes to be followed. Here are additional steps to consider:
- Name co-agents: You can name as many co-agents as you like and be specific as to the powers each one has. For example, you could name two of your children as co-agents or a trusted friend and one of your children.
- Name a third party for oversight: You can ask that your agent provide a written summary of all financial actions to another trusted individual, such as your lawyer or a family member.
- Let others know who your agent is: Inform your financial institution and other family members when you have given someone a POA. That way, they can be on the lookout for unusual financial activity.
- Limit the powers: Be specific in your POA documentation as to what your agent can and cannot do. For instance, you could authorize your agent to pay your bills and manage your bank accounts but not change the beneficiaries of your life insurance.
Life situations change, and so do relationships. You can revoke a power of attorney at any time, and you don't need to provide a reason if you decide to make the change to a new one.
When you appoint a trusted person to serve as your agent, it can give you peace of mind that your financial affairs or medical decisions will be handled according to your wishes.
Writing a POA need not be complicated or time-consuming. Download our Power of Attorney Form to meet your needs.
Create Your Power of Attorney Here
Helpful Resources: POA - ABA Prevent POA Abuse - Kiplinger
Table of Contents:
Table of Contents:
One of the most important steps in estate and eldercare planning is setting up a power of attorney.
Yet, many people have misconceptions about power of attorney, mistakenly thinking that it is a complicated process or that it is only for the very wealthy. Fortunately, neither of these ideas is true.
Power of attorney (POA) is a legal document that gives one person (called the agent) the authority to make choices and decisions about the finances, property, or medical care of another person (called the principal).
The agent need not be an attorney or a financial professional. Many people assign POA to a trusted family member or friend. You also can assign more than one individual to serve as co-POAs.
Under the terms of a POA, the agent can have broad or limited powers, ranging from paying bills to managing the agent’s investments or making decisions about their medical care. However, be aware that something a principal cannot do is change the terms of the agent’s last will and testament.
Read on for more information on what someone can and cannot do when you name them as your agent.
Types of Powers Granted
There are two overall types of POA – a general POA and a limited POA.
A general POA authorizes the agent to act on behalf of the principal in any matters under state laws.
For example, the agent might manage bank accounts and assets, sign checks, buy or sell property, and file taxes for the principal.
A limited POA gives the agent authority to act on the principal's behalf only in specific matters or events.
For instance, this type of POA might allow the agent to manage the principal's retirement and savings accounts.
Or, if the agent will be living in another country for two years, a limited POA might be in effect for that time.
Limited and general POAs can be used when the principal is unable to sign legal documents due to temporary or permanent disability or illness.
Here are other ways POA can be granted.
- Durable Power of Attorney. A durable power of attorney (DPOA) gives the agent the ability to make decisions on specific legal, property, or financial matters. Although a DPOA can pay health-related bills on behalf of the principal, this agent cannot make decisions regarding the principal's health, such as ending life support.
- Medical Power of Attorney. A Healthcare Power of Attorney (HCPA) can give the agent the power to make important health-related decisions on behalf of the principal.
- Financial Power of Attorney. Another type of durable POA allows an agent to manage the principal's business and financial affairs of the principal. Tasks can include signing and depositing checks, filing tax returns, and managing investment accounts.
Limits on Agents
The laws of each state govern powers of attorney, and the state laws can vary in their requirements and limitations.
However, most states have adopted the Uniform Power of Attorney Act (UPOAA) of 2006 and therefore have some uniform language.
For example, the UPOAA stipulates that POAs go into effect as soon as they are signed. The act also states that the POA ends when the principal passes away (§75-9-110).
If you live in a state that follows the UPOAA, then any other state that also follows it will accept and acknowledge its guidelines. You must check your state law before drawing up a POA or agreeing to act as an agent for a POA.
Power of Attorney Cannot Change a Will
The only legal requirement for writing a last will and testament is that you are of sound mind to make decisions and that the will is documented in written form. In most states, a will does not have to be prepared by an attorney, notarized, or witnessed.
As long as a will is valid according to the laws of your state, a POA cannot change its terms or rewrite it in any way. A will written or revised by a POA is invalid. In most states, the POA ends upon the principal's death. At that time, the principal's legal rights transfer to their estate.
Power of Attorney Can Change an Estate
Although an individualwith POA cannot change a will, they can change the circumstances ofa will.
Someone with general powers could make decisions that significantly change your financial situation. These steps could negatively impact the assets you have designated for your heirs.
Here's an example. Let's say that you state in your will that you leave all of your investments to your son and all of your cash holdings to your daughter, who is the heir. You then designate your daughter with POA.
Then, over the course of the last year or two of your life, your daughter liquidates all of your investments, claiming she needs the cash to care for you and pay your expenses.
Whether her intentions were in bad faith or not, your daughter has now effectively left your son with no inheritance.
How to Prevent Abuse from an Agent
Fortunately, there are ways to protect yourself and your estate from abuse by your POA agent. The most crucial step is to name someone you know and trust as your agent.
Then, speak with this person about your wishes so that there can be no mistake or misinterpretation of how you want those wishes to be followed. Here are additional steps to consider:
- Name co-agents: You can name as many co-agents as you like and be specific as to the powers each one has. For example, you could name two of your children as co-agents or a trusted friend and one of your children.
- Name a third party for oversight: You can ask that your agent provide a written summary of all financial actions to another trusted individual, such as your lawyer or a family member.
- Let others know who your agent is: Inform your financial institution and other family members when you have given someone a POA. That way, they can be on the lookout for unusual financial activity.
- Limit the powers: Be specific in your POA documentation as to what your agent can and cannot do. For instance, you could authorize your agent to pay your bills and manage your bank accounts but not change the beneficiaries of your life insurance.
Life situations change, and so do relationships. You can revoke a power of attorney at any time, and you don't need to provide a reason if you decide to make the change to a new one.
When you appoint a trusted person to serve as your agent, it can give you peace of mind that your financial affairs or medical decisions will be handled according to your wishes.
Writing a POA need not be complicated or time-consuming. Download our Power of Attorney Form to meet your needs.
Create Your Power of Attorney Here
Helpful Resources: POA - ABA Prevent POA Abuse - Kiplinger
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