Modern Estate Planning Blog

Question: I’ve heard the term power of attorney, but I’m not sure what that is. Are there different types?

Answer: A power of attorney is a legal document that allows one person to give another person legal authority to do certain things. Most often a power of attorney is associated with managing financial actions, such as accessing bank accounts, paying bills, managing investments, or making sure income tax returns are filed.

There are several types of powers of attorney. A “limited power of attorney” gives authority for very specific items and for a limited period of time. A good example would be a limited power of attorney for one spouse to complete a real estate transaction when the other spouse is out of the country. A “general power of attorney” contains very broad powers and may or may not be limited in time. Finally, a “durable power of attorney” is one whose powers continue to be effective even if the power giver becomes incapacitated. If the power of attorney is not “durable” the powers terminate on the death or incapacity of the power giver.

The Durable Power of Attorney is a powerful estate planning tool for making sure your wishes are carried out by your hand-selected helper if you become incapacitated. Because the powers are broad and powerful, you need to choose your helper carefully. In the wrong hands a power of attorney can create disaster and leave you penniless.

Finally, the powers granted in the power of attorney can either become effective immediately when the document is signed or “spring” to life upon the happening of an event, such as the incapacity of the power giver.

While the form power of attorney looks simple there are many things to consideration when putting it in place.