You’ve probably heard the phrase “power of attorney” before. What does it mean? Power of attorney is a legal instrument that gives someone — an “agent” or “attorney in fact,” the right to act on someone else’s — the “principal’s” — behalf. The person who gets that right doesn’t need to be a lawyer, nor do they suddenly become one just by being a part of the agreement1.
The basic concept has been around for centuries. But power of attorney law has evolved and become more important in the past few decades, especially as the country’s population ages. Notably, some types of powers of attorney can name a person to handle issues that come up while a principal is unable to make decisions2. This is often known as “incapacity” or “incompetence” and often occurs following an accident or onset of illness like dementia3. It’s important to understand the different kinds of power of attorney, so you can choose which one is right for you.
In this Article:
- Limited/Special Power of Attorney
- General Power of Attorney
- Durable Power of Attorney
- Medical/Healthcare Power of Attorney
A limited power of attorney is the narrowest kind of POA. These give an agent power to act only in a certain area or areas — and only over a set amount of time or conditions4. For example, if an important contract will require your immediate signature, but you anticipate that you’ll be out of town when the contract is ready, you could create a limited power of attorney agreement that would authorize someone else to sign for you. You could spell out that the agent’s power is limited to signing the contract, and that it ends after a certain date, or as soon as the contract is signed.
General power of attorney agreements give an agent the power to act in all of a principal’s financial matters5. The idea is that, sometimes, important issues beyond those that might be thought of in a limited or special power of attorney require a quick answer from Person A, and in case A isn’t immediately available or isn’t equipped to provide one, Person B is allowed to make those decisions. In this case, Person B is an “agent” like the kind of person who negotiates deals for athletes and movie stars. General power of attorney agreements historically ended if the principal became “incompetent or incapacitated6.”
General POAs would end in cases of incompetence or incapacity because A would no longer be able to monitor whether B was doing a good job7. General powers of attorney still exist for financial matters and can be useful in limited circumstances8. But we don’t always want the person who handles our day-to-day financial concerns to oversee the estate we pass on after we die, or to handle other, non-monetary matters, like medical decisions. For those issues, we look to other types of powers of attorney.
Beginning in the 1950s, states started to recognize the shortcomings associated with general powers of attorney, and began creating ways for a principal to give others power to act in case of incapacity or incompetence in the principal, making the power of attorney “durable” enough to withstand such a change. Today, a narrow majority of states presume that a power of attorney is durable unless the agreement specifically says otherwise9.
Before the creation of durable power of attorney, the financial affairs of those who had become incompetent or incapacitated were primarily handled by guardianships or conservators, who were appointed by a court to oversee assets. But this sort of relationship was generally very expensive to maintain, and left the non-wealthy with few good options10.
Durable financial powers of attorney can give the agent the ability to oversee bank accounts, stocks, government benefits like Social Security, real estate holdings and the businesses or going concerns of the principal. In some states, it is necessary to give a county clerk a copy of the power of attorney in order for the agent to dispose of real estate, and it’s often a good idea to provide it to the principal’s banks and financial institutions11.
The power can become effective immediately, at a specific date, or when incapacity or incompetence begins12. This last type is known as a “springing” power of attorney. One of the most important things to consider in crafting springing power of attorney agreements is specifying the manner of deciding that principal is considered incapacitated or incompetent13. A common definition is “an inability of an individual to manage property or business affairs because the individual has an impairment in the ability to receive and evaluate information or make or communicate decisions even with the use of technological assistance14.” But whether or not a person is incapacitated or incompetent is a frequent subject of disagreement and litigation, so it is beneficial to be specific. The agreement can specify the person who gets to make the decision and give that person access to the principal’s medical information, or can describe conditions that must be identified by a physician or physicians15.
In some states, medical decisions are treated separately from the financial choices made under durable attorney agreements. In others, a durable power of attorney agreement can cover both16. In general, however, it is best to have a separate agreement for medical and healthcare decisions, because they implicate different values from financial ones17. Medical powers of attorney can be useful for those suffering from chronic diseases or the victims of tragic accidents, and provide the self-determination of care and course of treatment that physicians identify as a cornerstone of patient rights18.
Some people create “living wills” or “advanced healthcare directives” that identify courses of treatment a principal does or does not want; a medical power of attorney, on the other hand, gives power to a chosen person to make care decisions on the principal’s behalf19. A medical power of attorney may be preferable because the limitless complexity of health issues can make healthcare directives difficult to interpret or apply20. However, given the scope of this power, it’s advisable for the principal to have thorough conversations with agent candidates to make sure the agent understands the principal’s values and priorities.