What is a Power of Attorney? Here are the basics.

A Power of Attorney is the financial compliment to the advanced medical directive.   The power of attorney (“POA”) allows a person to appoint another person to act in their stead to make certain decisions.   In fact, an advanced medical directive is sometimes referred to as a “healthcare power of attorney.”  But, most people use the term “power of attorney” to mean dealing with financial issues.

The mechanics of a POA are very simple. A person, called the principal, creates a legal document giving someone, called the agent or, attorney-in-fact, powers to act in the principal’s place.  The powers conferred can be extremely diverse, from only dealing with one issue to spanning all the normal financial powers the principal could have. The agent is in a fiduciary relationship with the principal.  The law requires the agent to act in the best interests of the principal.  The agent must also be completely honest with and loyal to the principal in their dealings with each other.

There are two basic forms of POAs that govern financial decisions.  The first is typically called a regular power of attorney. In a regular power of attorney, the powers vested in the agent by the principal are revoked if the principal becomes incapacitated, incompetent or dies.  This makes a regular power of attorney restricted if the principle is facing a debilitating disease.

The other form of POA is the durable power of attorney (“DPOA”). A DPOA is effective from the moment of execution of the document.   A DPOA will also be in effect when the principal becomes incapacitated.   It can last until the principle terminates or a termination date or event is listed in the DPOA.

A DPOA can also become effective when the principal becomes incapacitated, but the DPOA must expressly state that requirement.  This is sometimes known as a “springing” power of attorney.

No matter what, a DPOA ends at the death the principal.

A principal can provide a number of powers to an agent.  Each state has individual restrictions a principal can confer but an agent’s powers may include any of the following:

  • Buy, manage, or sell real estate
  • Disclaim interests to avoid estate taxes
  • Employ professional assistance
  • Enter into contracts
  • Enter safety deposit boxes
  • Exercise stock rights
  • File tax returns
  • Handle banking transactions
  • Handle matters related to government benefits
  • Handle transactions involving securities
  • Maintain and operate business interests
  • Make gifts
  • Make transfers to revocable trusts
  • Purchase life insurance
  • Settle claims

Since an agent’s powers could be vast, a principal should be careful in selecting an agent.  If necessary, the principal should include any desired restrictive clauses in the power of attorney document.

It is important to recognize the value of being able to assign these decision-making capabilities to a trusted family member or friend, especially in the case of durable powers of attorney that continue to be legally binding in cases of incapacity. These documents can save caregiving family members and friends a great deal of time, frustration and money.


About Chris Guest

I am a trust and estate planning attorney working in the Washington, DC metro area. I offer comprehensive estate planning, trust administration, probate services and general business counseling for accountants, attorneys, business owners, consultants, federal and local government employees, retirees, other business professionals and other individuals.
This entry was posted in Durable Power of Attorney, Power of Attorney. Bookmark the permalink.

One Response to What is a Power of Attorney? Here are the basics.

  1. Pingback: The Driverless Car and Estate Planning | VA Estate Planner

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