What Is a Power of Attorney?

    A power of attorney (POA) is a legal document that allows one person (the principal) to appoint another person (the agent, proxy, or attorney-in-fact) to act on the principal’s behalf in various matters as set forth in the power of attorney. The agent is someone the principal chooses such as a spouse, parent, adult child, sibling or trusted friend. 

    A POA is often used when the principal cannot make necessary decisions or sign required documents. It allows the agent to step in and assume those responsibilities without the need for a court-appointed guardianship or conservatorship. 

    A POA is only effective while the principal is alive. Upon death, the power of attorney is no longer valid, and the principal’s estate representative becomes responsible for managing the principal’s affairs.

    The agent has a fiduciary duty to act with care and loyalty in the principal’s best interests. Doing otherwise may constitute POA abuse and can lead to legal liability for the agent.

    POA Potential of Flexibility and Versatility   

    POAs may be customizable, potentially allowing the grantor to tailor the POA to the Principal’s specific needs and wishes. The POA document outlines the precise powers granted to the agent and determines the limitations of those powers. A principal may revoke their POA as desired, giving the principal autonomy over who manages their affairs, when, and for how long. 

    A POA is often used in cases where the principal is temporarily or permanently incapacitated due to illness, disability, advanced age, or other conditions. Alternatively, if permitted by the document, a POA can be used for short-term use if the principal is temporarily unavailable, such as a deployed serviceperson or someone traveling abroad for an extended period. 

     

    Types of POAs

    Various POAs are available to meet different needs of the principal. Here is a brief overview of the most common types of POAs.

     

    General POA 

    A general POA allows the agent to act on the principal’s behalf in a broad range of matters as set forth in the document, such as signing checks, managing bank accounts, overseeing real estate transactions, and filing taxes. A general POA is only operational if the principal is coherent and mentally competent. It automatically expires if the principal becomes incapacitated. 

     

    Durable POA

    Contrasted to a General POA, a durable POA remains in effect even if the principal becomes incapacitated. The purpose for a Durable POA is for continuity in financial decision-making for the principal. A Durable POA is a common type of power of attorney often recommended to enable the agent with the authority to act on behalf of the principal even after incapacity.

     

    Limited Power of Attorney (LPOA)

    A limited (or special) POA allows the agent to act on the principal’s behalf in particular events or specific matters as set forth in the document. The principal can have the LPOA be effective for a certain period of time or for specific purposes, like managing certain investments or selling a particular property. 

     

    Medical POA

    Known by different names in different states, such as healthcare POA or advanced health care directive, a medical POA allows the agent to communicate with healthcare providers and make decisions on the agent’s behalf about their care. A medical POA names individuals to make health care decisions for the principal and differs slightly from an advanced directive or living will, which are specific to an individual’s wishes regarding certain end-of-life decisions. 

     

    Springing POA

    A POA may be effective immediately upon signing, or may be “springing”, i.e. the POA “springs” into action at a future time or occurrence as designated by the principal in the document, often upon the principal’s incapacity. The principal determines which conditions must be met in the document before this POA can take effect, such as incapacity and how it is defined, as well as the terms of the POA, such as if it will be a General POA or LPOA.

     

    Do I Need a Power of Attorney?

    You should consider creating POAs if you want another person to have the authority to act on your behalf in the above ways. If you are not proactive about adopting proper POAs and other estate planning measures, you cannot ensure that your wishes will be known or honored, and a Court proceeding may be required. 

    Experienced advisors at EP Wealth work with you to create a strategy that reflects your estate planning goals. We review your POAs and recommend other tools and solutions to manage your assets for you and the next generation. Call, connect online, or locate an advisor near you to learn more.

    DISCLOSURES:

    • Information presented is general in nature and should not be viewed as a comprehensive analysis of the topics discussed. It is intended to serve as a tool containing general information that should assist you in the development of subsequent discussions. Content does not involve the rendering of personalized investment advice nor is it intended to supplement professional individualized advice.
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    • The need for a financial advisor or financial planner and/or the type of services required are specific to the uniqueness of each individual’s circumstances. There is no guarantee or warrantee that the services offered by EP Wealth Advisors, LLC will satisfy your specific financial services requirements. Services offered by other advisors may align more to your specific needs.
    • An estate plan is a helpful tool that can assist individuals in managing and arranging affairs in the event of death or incapacity. However, the scope and extent of the plan varies depending on the unique circumstances and desires of the individual client. It is for this reason, that the analysis encompassed herein is not intended to be comprehensive in nature nor should it be interpreted as legal advice. Please consult a legal professional to determine the extent, scope, and the drafting and creation of the appropriate estate documents. EP Wealth Advisors is not in the business of providing legal advice or preparing legal documents. Our review is limited to and in association with Financial Planning only.
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