Power of attorney may sound like a very technical term. If you do not know what it means and want to find out, then you have come to the right place. Continue reading to find out all the answers to your questions.
Let’s jump right in!
Table of Contents
- 1 What is The Definition of Power of Attorney?
- 2 Types of Power of Attorney
- 3 Choosing a Power of Attorney
- 4 Risks of Being a Power of Attorney
- 5 Advantages of a Power of Attorney
- 6 Disadvantages of a Power of Attorney
- 7 Conclusion
What is The Definition of Power of Attorney?
A power of attorney or POA for short is a legitimate, contractual document which gives a specific person the power to make decisions for another person (the principal). The person who is granted that power is the agent or attorney-in-fact whereas the other person is the principal.
The agent can have full or limited power to make legal decisions regarding many things in the principal’s. This means that the attorney-in-fact can make major financial decisions, give others gifts of money, recommend a guardian, and make choices regarding your property etc.
In addition to this, the agent can also make major medical decisions which include giving consent or even stopping a certain medical assistance. However, the healthcare power of attorney can also be given to another person who will solely have the power to make healthcare related decisions.
The power of attorney is often utilized in case of the principal’s sickness or other medical condition, or when that person cannot be available to sign important legal documentations or any financial reports.
Moreover, a power of attorney can be dissolved for various reasons. For example, when the principal cancels it, the court abolishes it, the principal dies, the principal and his/her partner who is the agent separate, or the attorney-in-fact can no longer carry out the required duties.
Types of Power of Attorney
If you are planning to give someone the right of power of attorney, or vice versa, then you should also know about its types. There are four types of power of attorney as given below:
General Power of Attorney
If the agent has a general power of attorney, then he/she can carry out any act and make decisions in place of the principal.These decisions include those such as starting financial accounts and even control the principal’s personal assets. However, a general power of attorney can be abolished when the principal becomes disables, cancels the power of attorney or dies.
Durable Power of Attorney
The durable power of attorney allows another person to make decisions in place of the principal. Moreover, it also consists of a reliable clause that keeps the power of attorney even after the principal becomes disabled.
Special or Limited Power of Attorney
A special or limited power of attorney only grants certain powers to the agent. In addition to this, these powers are also only restricted to a specific area. For example, the agent can only deal with the principal’s real estate properties, or only with his/her medical decisions.
Springing Durable Power of Attorney
A springing power of attorney is present in some states in the U.S.A. This type of power of attorney is only active when a specific event takes place. An example of this could be in a situation when the principal becomes disabled.
Choosing a Power of Attorney
A POA gives a great amount of authority and responsibility to a specific person. In the case of a medical POA, you are literally giving someone the power to make life or death decisions for you. Moreover, you would also be handing over your personal financial accounts, assets and other such details to a single person. Therefore, you need to make sure that you completely trust this person with your life. You must select your agent after giving it some thought. Moreover, it should be someone you trust a lot so that he/she can make sure your wishes are granted and no expense is spared.
It is quite essential to name an individual who is both reliable and fit to fill in as your agent. This individual will act with the same legal power you would have, so any errors made by your agent might be exceptionally hard to address. In addition to this, contingent upon the degree of the forces you award, the potential of self dealing. An agent will be free to access your financial balances, will have the power to make endowments, transfer your assets, and will also possess the authority to sell your property.
Your agent can be any consenting adult, and could also be someone professional such as an attorney, accountant, or banker. Moreover, your agent could also be someone from your family such as your spouse, adult child or another relative. It is always better to name a family member as your power of attorney. In this way, you don’t have to worry about trusting a stranger with personal information. In addition to this, it will also save you a lot of money that you would have otherwise given to a professional attorney.
Risks of Being a Power of Attorney
There are a lot of risks involved in being a power of attorney. These risks include:
- You will be personally accountable for the financial decisions you make.
- There could be a chance that you mess up the principal’s finances or property. You are human after all!
- If you do not read the terms and conditions of the POA thoroughly, you may end up doing something that breaches the POA agreement.
Advantages of a Power of Attorney
There are many benefits of having a trustworthy power of attorney. Some of these advantages are:
- Without a doubt, the major advantage of a POA is how favourable it is to have one. The POA can make decisions on your behalf when you are not present. Moreover, it also takes the stress away from you.
- A POA can help you when you are unable to take care of yourself. This usually occurs in situations where you are incapacitated, bedridden, or have some other medical problem.
- The adaptability of a POA, in terms of authority, the power to make decisions and time period, all make it a pretty good choice for some.
Disadvantages of a Power of Attorney
Apart from the benefits, there are also some disadvantages of a POA. These disadvantages include:
- One huge drawback of a POA is that the agent may make a few decisions that the principal would never have.
- Nobody except for the principal is overlooking what the agent does. In case something happens to the principal, the agent is all on his/her own. If the agent is somebody who is not very reliable, it could end up in him being involved in fraud or something worse.
- With the potential threat of fraud, a bank or another financial institution may not approve a power of attorney.
Now that you know all about what a power of attorney means, and what the advantages, disadvantages, and risks are, you are ready to decide whether you want a power of attorney or not.