how a power of attorney poa works
a power of attorney is a legal document that binds the agent or attorney in fact and the principal it s used in the event of a principal s temporary or permanent illness or disability or when they can t sign necessary documents 1 both parties must sign the document and a third party is usually required to witness it most poa documents authorize the agent to represent the principal in all property and financial matters as long as the principal s mental state of mind is good the agreement automatically ends if the principal becomes incapable of making decisions for themself 2a power of attorney can end for several reasons such as when the principal revokes the agreement or dies when a court invalidates it or when the agent can no longer carry out the responsibilities outlined in the agreement in the case of a married couple the authorization may be invalidated if the principal and the agent divorce someone who wants the power of attorney to remain in effect after their health deteriorates should sign a durable power of attorney dpoa this remains in force even if the person they re representing becomes mentally or physically incapacitated but it doesn t persist after the principal s death the authority is also voided if the power of attorney isn t designated as durable and the client becomes mentally incapacitated 3there are many good reasons to make a power of attorney because it ensures that someone will look after your financial affairs if you become incapacitated but signing a poa that grants broad authority to an agent is very much like signing a blank check types of powers of attorneya durable poa takes effect when the document is signed and continues in the case of incapacitation of the principal a springing power of attorney comes into effect only if and when the principal becomes incapacitated a power of attorney may also be limited to only medical matters enabling the agent to make crucial decisions on behalf of an incapacitated person 3the two key types of poas are financial and health care health care power of attorney hcpoa the principal can sign a durable health care poa hcpoa if they want an agent to have the power to make health related decisions for them this document is also called a health care proxy it outlines the principal s consent to give the agent poa privileges in the event of an unfortunate medical condition this poa kicks in when the principal can no longer make health related decisions on their own 3financial power of attorneya financial poa allows an agent to manage the business and financial affairs of the principal such as signing checks filing tax returns depositing social security checks and managing investment accounts when and if the principal becomes unable to understand or make decisions the agent must carry out the principal s wishes to the best of their ability at least to the extent of what the agreement spells out as being the agent s responsibility a financial poa can give the agent a wide range of power over the principal s bank account including the ability to make deposits and withdrawals sign checks and make or change beneficiary designations financial poas can be divided up into several categories this poa allows the agent to act on behalf of the principal in all matters as allowed by state law the agent under such an agreement may be authorized to handle bank accounts sign checks sell property manage assets and file taxes for the principal 3a limited power of attorney gives the agent the power to act on behalf of the principal in specific matters or events it might explicitly state that the agent is only permitted to manage the principal s retirement accounts this type of poa may be in effect for a specific period the authorization might be effective only for two years if the principal will be out of the country for that length of time 1a durable poa dpoa remains in control of certain legal property or financial matters that are specifically spelled out in the agreement even if and when the principal becomes mentally incapacitated a dpoa can pay medical bills on behalf of the principal but the durable agent can t make decisions related to the principal s health such as taking them off life support 3the conditions for which a durable poa may become active are set up in a document called a springing power of attorney a springing poa defines the kind of event or level of incapacitation that should occur before the dpoa springs into effect 3a power of attorney can remain dormant until a negative health occurrence activates it to a dpoa a springing power of attorney should be very carefully worded to avoid any problems in identifying precisely when and if the triggering event has happened an individual who s appointed as the agent in a power of attorney is not necessarily an attorney the person could be a trusted family member friend or acquaintance 1