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Power of Attorney

Have you ever wondered what is a power of attorney? There are several types. Learn more and decide which powers of attorney may benefit your estate plan.

What Is A Power of Attorney And Why Do I Need It?

A power of attorney (POA) provides one individual with authorization to act on another's behalf. The person who creates the power of attorney is called the principal, and the person designated to act within the parameters of the POA is often referred to as the agent or “attorney-in-fact.” A power of attorney may have a number of useful functions, including within estate planning and as part of a long-term care plan. In many cases, creating a POA is a recommended, vital piece of an estate plan.

What is a power of attorney? Learn more from Jason English Law by calling (512) 454-7548.

What Does Power of Attorney Allow Me to Do?

All of the agent's powers are set out in the power of attorney document. This legal document describes all of the agent's rights and obligations, including setting out certain limits and authorizations for their actions. Some powers of attorney are very broad. They might include “all financial decisions” or “all medical decisions.” In other situations, a power of attorney document is very limited, and might only apply to decisions related to a specific piece of real property or only be effective for a certain amount of time.

Ultimately, any power that an agent designated under the POA has must be found within the power of attorney document. Agents cannot take any action that is not authorized within the power of attorney document.

What Are the Four Types of Power of Attorney?

Powers of attorney are actually very flexible documents. They can be virtually as limited or broad as the principal would like them to be. What is a power of attorney? It depends on the type. In general, powers of attorney fall into four broad categories.

General Power of Attorney

This is the most general type of power of attorney. This type of relationship allows the agent to perform almost any action on the principal's behalf. For example, they could open and manage financial accounts or take action regarding real estate. However, this type of POA stops if the principal becomes incapacitated or revokes the power of attorney. The POA also becomes ineffective if the principal passes away.

Durable Power of Attorney

This power of attorney can also be very broad. The main distinction between a durable power of attorney and a general power of attorney is that a durable power of attorney will still be effective if the principal becomes disabled or injured and can no longer make decisions on their own. This type of legal relationship is often used as part of a comprehensive estate plan so that others can step in to handle finances and property as the principal ages.

Special or Limited Power of Attorney

A limited or special power of attorney is any power of attorney that is limited in some way or that only applies to certain items. The limitation could be based on certain types of assets (real estate, investments, bank accounts, etc.), or it could be limited to geographic location (e.g., only real estate in Texas). The POA might be limited in time as well, such as providing authority to act while the principal is out of the country. A medical power of attorney is a type of limited power of attorney that specifically applies to only medical decisions.

Springing Durable Power of Attorney

A “springing” power of attorney is similar to a durable power of attorney, but it only becomes effective once the principal becomes incapacitated, such as from age, illness, or injury. A normal durable power of attorney is effective immediately, but a springing power of attorney only “springs” into action when the principal cannot make certain decisions on their own. Springing powers of attorney can be a helpful tool in the estate planning and long-term care context.

Functions of Power of Attorney Within an Estate Plan

Powers of attorney should be drafted to meet certain goals. If a principal only wants to grant certain powers, those need to be specifically explained within the power of attorney document, so that intentions and goals are very clear. Contact Jason English Law for more information about creating a power of attorney that meets your specific needs.

What Are the Liabilities and Responsibilities for a Power of Attorney?

A power of attorney allows an agent to act on someone else's behalf. As a result, the debts and financial decisions they make are generally not the POA's individual liabilities. Instead, their actions are on behalf of the principal, so the principal will be on the hook for those decisions. This power entails considerable responsibility. Each POA has an obligation to the principal to:

  • Act in good faith and honestly
  • Be reasonable and exercise due care
  • Act only within the authority given to them by the power of attorney document
  • Keep records of all actions and accounts that they manage

For some agents and principals, the idea of someone else making binding decisions on their behalf can be a bit scary. As a result, it is a good idea to choose carefully when it comes to designating a POA. The American Bar Association also suggests considering naming more than one person to ensure that a principal's wishes are carried out properly.

What Are the Disadvantages of Having a Power of Attorney?

When the principal provides another person with authority over anything, they are opening themselves up to some risk. The POA has very little oversight, which can lead to POA abuses. The Consumer Financial Protection Bureau provides information about the potential for POA abuse and resources on how to avoid it and report it. Examples of POA abuse might include:

  • Acting without authorization in the power of attorney document (but stating that they have such authorization to third parties)
  • POA forgery
  • Pressuring the principal for additional power or authorization
  • Spending money on themselves instead of for the principal's benefit

To combat some of these issues, principals should think carefully about whom they choose to name as their agent. Consider building in a regular reporting requirement to another person or disinterested third party. You might also want to tell others (friends, family, or financial advisors) about the POA and its limitations so they can help spot and address abuse.

Get Help Creating a Power of Attorney That Works for You

What is a power of attorney? It can be a useful estate planning tool. However, creating a generic power of attorney often will not accomplish your specific goals. Instead, you might benefit from working with an experienced Texas estate planning attorney to create a power of attorney document that addresses your particular needs.

Contact Jason English Law by calling (512) 454-7548 to learn more about the Power of Attorney to accomplish your goals and safeguard your future.

A power of attorney is a legal document that authorizes another to act on behalf of another person.  They are commonly used to allow the principal to appoint an agent to complete the sale of a house or car, as well as, other routine chores and decisions.  The powers granted to an agent can be broad or limited.  They can have a termination date, be in affect until revoked, or have the power and authority only spring forth at some later time or event.  We commonly recommend a power of attorney to authorize others to make health-care decisions in the event that you become incapacitated.   Regardless of whether the power of attorney is limited or broad in terms of powers granted or limited or durable in terms of duration, powers of attorney terminate at your death. 

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