Learn about the five most common types of power of attorney, what rights are granted, limitations, and things to consider when setting up your POA.
We all imagine ourselves living long and fulfilling lives, but life is not always predictable. While many of us hope for the best, we often forget to plan for the worst. The best laid plans have contingencies and layers of protection for situations that can’t be planned for. One important layer of protection is a power of attorney.
This document can be designed to assist you (or a loved one) during any stage of life—whether you are preparing to have your baby at the hospital and submitting a medical POA on file just in case, or you’re caring for a sibling who was just diagnosed with a terminal illness and they need your help managing their finances while they undergo treatment.
A Power of Attorney is when a person, known as a “principal,” gives financial, medical, or legal power to a selected person, known as an “agent,” to act on the principal’s behalf in certain situations and under specific circumstances. These powers include managing bank accounts, paying bills, investing, or buying and selling property. There are many types of power of attorney, and selecting the correct one for your specific needs and estate plan can help protect you and your estate. Let’s discuss the five types of power of attorney and which may best fit your individual estate planning needs.
5 Types of Power of Attorney
1. General Power of Attorney
A general power of attorney allows your authorized agent to act for you in all situations permitted by local law. A POA includes legal, financial, business, and health-related matters. A power of attorney typically ends when the principal becomes incapacitated—the purpose of a POA is to give someone else the authority to make decisions and take actions on the principal’s behalf when they can do so themselves. When the principal becomes incapacitated and unable to make decisions for themselves, they are no longer able to oversee the actions of their agent effectively, and the POA may be terminated by the court. A general POA can be durable or non-durable, depending on your needs. A non-durable POA can allow for the following rights:
- Managing the principal’s financial affairs, such as paying bills, managing bank accounts, and investing assets
- Hiring professionals, including medical help and consenting to medical treatments
- Buying, selling, or renting real estate on the principal’s behalf
- Purchasing insurance policies
- Operating the principal’s business
- Representing the principal in court, settle any outstanding financial or legal claims
- Filing taxes and claiming government benefits
A general POA gives your agent a wide range of power over your affairs, but there are still some things they can’t do. Here are some examples of limitations on an agent acting within a POA:
- The agent can not change your will or estate plan
- The agent can not transfer responsibility to another agent
- The agent has a fiduciary duty and can not act outside the principal’s best interest
- The agent can not use the principal’s assets or money as their own
- The agent can not take compensation beyond what is outlined in the POA
2. Special Power of Attorney
A special power of attorney, also called a limited power of attorney, grants limited powers under specific, clearly laid-out circumstances. This type of POA is used when power needs to be granted, but the scope of that power is specific to a particular situation. An example of this POA would be if you need to travel outside the country for business and you are selling your home and need someone to sign documents on your behalf. The rights, scope, and limitations of the special power of attorney are laid out in the document, and no action can be taken outside what is specified.
3. Durable Power of Attorney
A durable power of attorney survives incapacitation. In Virginia, a POA is considered a durable POA unless otherwise stated. A durable POA is active even when the principal becomes incapacitated. This avoids the process of the court appointing a conservator. This is the only POA that operates in this manner. With other POAs, incapacitation means the POA is revoked, and the court will get involved unless other estate structures are in place to mitigate this process. A durable power of attorney can grant you permission to:
- Act on your parents’ behalf on any matter
- Sign legal documents
- Advising on healthcare decisions
- Making financial and business decisions
The limitations on an agent acting within a durable POA are the same as with a general POA. Here is a specific example of a common circumstance that arises with the limitations of a durable POA:
- An agent can not transfer responsibility to another agent. In cases where you are caring for another person who is incapacitated and you are unable to fulfill your duties under the durable POA. The situation would go to court for a guardian or conservator to be appointed
4. Springing Power of Attorney
A springing power of attorney, also called a conditional POA, is a valid and legal document on the day it is signed but becomes active when a specific event or condition occurs. As the name suggests, the power of attorney “springs” into effect when the outlined contingency is satisfied. This is a common selection by many people planning their estate because it allows them to keep control but has a plan in place for “just in case” situations.
The drawback to a springing POA is that there would need to be a consensus that the “springing” event has occurred, which can be challenging to prove. One example is when a springing POA is in place for incapacity, and the principal is diagnosed with dementia. They may experience what medical professionals call “sundowning,” where they are fully coherent and able to make decisions in the morning, and by evening they are not. Here are a few limitations and drawbacks to a springing POA:
- Family members might have different opinions on if the “springing” event occurred
- Certification from a doctor can cause delays
- Just because your agent has the springing POA doesn’t mean they will act on it, especially if there isn’t an agreement regarding incapacitation.
- Not all financial institutions will accept a springing POA unless they can certify it was signed by a medical professional.
Determining incapacity can be a complex and subjective process, and it may be challenging to agree on whether the principal is incapacitated. This can lead to disputes and legal challenges and cause delays in getting help which can impact the principal and their family. Delays can result in improper and sub-par care.
A power of attorney can only become active if the principal and agent both can sign the documents. If there is any question of incapacity, then the POA will not be valid. This distinction is important because, many times, people wait until it is too late to get a POA in place. If this is a POA that the principal is interested in then it is best to sign it early instead of when decline is taking place.
5. Medical Power of Attorney
Watching your child turn 18 is a momentous occasion for any parent, marking the transition from childhood to adulthood and the beginning of a new phase of life. Many parents are helping their adult children obtain a medical POA. As kids head off to college, the reality is that parents no longer have the legal authority to make decisions for their adult children. Many families file a medical power of attorney in case of emergency so the parents can still direct medical decisions at the hospital if anything happens. Here are some things to consider when planning your medical POA:
- Have a conversation with your agent about your wishes and how you want your medical decisions made.
- If your views change, be sure to have another conversation and update your medical POA on file.
- Be specific with the medical decisions–do you want your agent to make the same medical decisions if you are pregnant? If a decision arises where the question of permanency comes into play, can they make a permanent decision, or would you prefer for a guardian chosen by the court to step in?
- File a copy of your medical POA with your medical records at our doctor’s office or the medical facility where you will be treated.
When you die, any power of attorney will be null and void, and your estate will default to the other structures you have in place. That could be a will that passes through probate or a living trust operating according to the trust’s instructions. If your estate plan is centered around a will, then the executor of your estate will take over. You can name your executor in your will or allow the court to appoint an executor during the probate process.
A Power of Attorney is an important legal document to include in any estate plan. The agent you select will take over medical care, financial management, and other vital decisions if you cannot do so. Understanding the different types of Power of Attorney, the rights granted, and the limitations will help you make the best decision for your estate.
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Disclaimer: This material is intended for general information purposes only and does not constitute legal advice. Responses to inquiries, whether by email, telephone, or other means, do not constitute legal advice, nor do they create or imply the existence of an attorney-client relationship.