A power of attorney is an important estate planning tool that everyone should have prepared before they need it. It allows for a person, the principal, to designate another person, called an agent, to act on their behalf in financial, legal and health matters, even when the authorizing person is incapacitated. Part of their usefulness is in the POA’s versatility: it can come in many shapes and forms and be as narrow or as broad as needed. However, that means there are a lot of different types of POAs and it can cause great confusion to the lay person. Here is what you need to know about different types of POAs.
Broadly speaking there are only a few general categories of POAs. They deal with what sort of powers the POA deals with (financial, healthcare), when the POA goes into effect (immediate or upon incapacity), the duration of the POA (term, length of a matter, or indefinite), and whether or not it terminates upon incapacity of the authorizing person (durable or non-durable). All of these different types of POAs and terms can be used together to make for a pretty confusing document for the average person to understand.
It is important to understand the powers associated with a POA. These powers determine what sort of situation the document can be used in. A financial POA will authorize the agent to act in financial matters, such as opening and closing bank accounts, transferring money, consulting with the authorizing individual’s financial planner or accountant, taking out insurance policies, and other financial services. The financial POA can act as the authorizing individual and sign on their behalf in any financial situation allowed. Similarly, a healthcare POA authorizes the agent to act in healthcare matters, such as approving treatment plans or having access to medical records. Other types of POAs that may appear are ‘limited’ or ‘special’ POAs. These are usually limited to very narrow situations, such as specific business or real estate dealings. Unless otherwise stated, most POAs are for an indefinite duration.
The timeline of a POA is also something to consider. Whether or not a POA goes into effect immediately is at the discretion of the authorizing individual. Unless a POA states that it is not immediate, it is assumed to be immediate. If a POA only goes into effect when the principal is incapacitated and cannot make decisions for themselves, it is called a springing POA.
Another very important distinction in POAs to understand is whether or not the POA is durable. A durable power of attorney will continue to be in effect when you are incapacitated and cannot take care of yourself. A non-durable power of attorney will terminate when you are incapacitated. Unless specifically stated, POAs are not durable. For estate planning, a durable POA is vital, as you want to make sure you have someone in place to manage your affairs when you cannot, otherwise a court will have to intervene to appoint someone for you.
You do not have to understand everything in your power of attorney, but you should be aware of what it affects, when it is in effect and whether or not it is durable. An estate planning attorney can help you review a POA that you currently have or help set one up. Everyone should have a POA for when they cannot take care of themselves. For questions regarding your POA, call Steciuch Law at (219) 476-3870 today.