When Should a Power of Attorney Document Be Created?

Power of attorney is a document. This legal document gives a person the power to appoint another to act on their behalf. Whoever is making the appointment is known as the principal. The receiving person is the attorney-in-fact or more commonly as the agent. In general, powers of attorney are variable in the level of control given to the agent and the duration of time the agent is granted the power to act. A general power of attorney allows the agent to act on any matter the principal could act on. A limited power of attorney specifies precisely what acts the agent is permitted to conduct and a specific power of attorney is typically limited to one transaction, such as a real estate closing for example. A power of attorney can be drafted to terminate at a date certain or continue for as long as it is not revoked by the principal. An ordinary power of attorney is one that remains effective as long as the principal has legal capacity to act, while a durable power of attorney allows the agent to act after the incapacity of the principal.

Powers of Attorney in Estate Planning

The primary purpose of estate planning is to provide financial security and an orderly transition of property and other assets to designated beneficiaries after one’s death. An important aspect of a well-crafted plan is its flexibility in carrying out the person’s wishes while he or she is still alive. To that end, a durable power of attorney for financial matters can be created as part of an estate plan to remain in existence from creation and continue after the incapacity of the principal, or alternatively spring into existence upon the triggering event of the principal’s incapacity. The principal can designate a certain doctor to make the determination of incapacity and require two licensed physicians, for example, to make that call. A durable power of attorney for medical issues can nominate another person to act as an agent for making decisions of what type of medical treatment the principal would choose or refuse if the principal could act for herself. Such powers of attorney are commonly called healthcare directives or advanced care directives.

Powers of Attorney FAQ

Q: When does a power of attorney become effective?

A: In most cases, immediately. The exception is when the POA springs to life as upon a triggering event such as the incapacity of the principal.

Q: If a POA is created, does that mean the principal surrenders the right to act on his own behalf?

A: No, the principal remains in complete control of all legal decisions as if the POA were never executed.

Q: Does the principal need to be competent to sign a POA?

A: Yes, the principal must have the legal capacity to do so. For purposes of a POA, legal capacity means the individual must understand the nature of the POA and the legal rights and responsibilities it creates. It is noteworthy that the requisite capacity can be intermittent and momentary and nonetheless be valid. The test is did the principal have legal capacity at the time of signing.

Q: Can an agent act contrary to the wishes of the principal?

A: Depending on the nature and scope of the POA, the agent could have broad powers to act. However, an agent who accepts a POA has a legally required fiduciary duty to the principal to act strictly for their benefit of the principal.

Q: Are there any restrictions as to who may become a POA agent?

A: An agent must be competent and at least 18 years of age. Those are the minimum legal requirements, but as an agent has such an important role, it is wise to select a very trustworthy individual or entity that understands the principal’s wishes.

Q: How can a POA be revoked?

A: If the document exists but has yet to be acted on, destroying the POA is sufficient. If the POA has been used or provided to certain third parties, it is preferable to create a document specifically revoking the POA and delivering copies to all concerned parties.

Q: Why have certain entities refused to honor a POA?

A: Because a POA is such a powerful document, many financial institutions and other entities are cautious when dealing with them. It is often necessary for the entity to vet the POA through their own legal department to ensure its validity. At the very least, a certified copy, preferably of a recently executed POA will be required.

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