Q: What is the power of attorney?A: In layman's terms, a power of attorney document gives someone permission to carry out legal actions on your behalf. The “attorney in fact” is the designated agent who carries out your wishes. It is important to choose this individual wisely and be sure you understand which kind of power of attorney best fits your situation.
Q: What are the different types of power of attorney?
A: There are four major types of powers of attorney, defined as follows:
1. A general power of attorney allows your agent to take any and all legal action you can legally take. It allows your agent to open or close a bank account, buy and sell stocks, sign checks or sell a house. Since it provides such a broad scope, a general power of attorney is usually not recommended.
2. A special (or limited) power of attorney gives someone the power to conduct only very specific actions. For example, a special power of attorney could allow your realtor to sign closing documents when buying your first home for you or give your daughter permission to pick up your paycheck while you are in the hospital. A medical power of attorney allows a designated agent, like your spouse or partner, to make medical decisions for you if you are incapacitated.
3. A durable power of attorney is one of your important estate planning documents. It allows your agent to make decisions on your behalf, remains in effect should you become incapacitated, and expires upon your death. Importantly, this form will allow your spouse and family to manage finances and other affairs without waiting for court authorization.
4. A “springing” power of attorney will spring to life in the event you are alive but incapacitated. Someone with a terminal illness or early onset Alzheimer's might draw up this form to ensure the family can access bank accounts, and complete other important tasks, if he or she become medically unable to make sound decisions. This form can be problematic and should specify exactly what determines your “capacity.” Please consult with an attorney if you think you might need this type of power of attorney.
Q: How long does a power of attorney last?
A: Most powers of attorney end on the expiration date or upon death. To protect yourself from misuse, be certain all powers of attorney include an expiration date, unless your lawyer has advised a durable power of attorney. For example, let's say you and your spouse are planning a European motorcycle trip and want to be sure your children's godparents can take them out of school or to a hospital while you are away. In this case, you would limit the time frame on the power of attorney to the duration of your trip and specify which actions they can take in your absence. If you wanted to renew the form, you would have to prepare a new one.
Q: How do you create a power of attorney?
A: Although there are many DIY templates, most experts recommend that you hire a lawyer with estate planning experience. Having a knowledgeable attorney draw up the form ensures you use the right type of power of attorney, understand exactly how it can be used, and know what could happen if someone abuses your trust.
Q: What cannot be done with a power of attorney?
A: No one can stand in a marriage ceremony, sign a marriage license for you or execute your will even if they have a signed power of attorney. Banks and businesses can refuse to honor any power of attorney at their discretion. The IRS requires a specific type of power of attorney before they will allow a friend or relative to cash your IRS refund check.