Understanding Power of Attorney: Why It’s Crucial Before You Need It

Preserving Control

Have you ever heard of Daughter from California Syndrome? It’s when you fight cancer for years and finally want to rest. Your daughter comes back and tries to make a major medical decision for you. You haven’t spoken in twenty years. There are two nightmares possible. 1) You gave her power of attorney without updating it–and now she succeeds at making the choice for you. 2) You didn’t prepare any POA, and after falling unconscious, you get stuck in the hospital on life support because no one can legally make a choice for you.

Power of attorney ensures someone you trust gets the authority to make legal, financial, or medical choices for you. Assigning an agent can cause legal delays, financial hardship, and confusion if you become incapacitated. Let’s go over what a power of attorney is, the types available, and why it’s essential to set one up before you need it.

What Is a Power of Attorney (POA)?

Power of attorney (POA) is a legal document granting another person authority to make financial, legal, or medical decisions on your behalf. The person granted power of attorney is called the “agent” or “attorney-in-fact”.

POA is important because it ensures someone will carry out your wishes if you become unable to act. Without POA, you don’t have someone to make major legal or medical decisions on your behalf. Even your spouse might not be able to access your bank accounts or make medical decisions for you if you didn’t set up a POA.

POA is crucial in cases such as:

• You’re unable to make medical decisions (e.g. Alzheimer’s or coma)
• You’re unreachable when travelling internationally
• A real estate needs to be closed within the hour, but you’re unavailable

The Main Types of Power of Attorney

General Power of Attorney

A general power of attorney grants broad authority over financial and legal matters.

General power of attorney is very powerful. There are typically limits imposed on power of attorney (e.g. time limits or specific actions). It is often used for temporary or specific situations, such as:

• Extended travel
• Closing real estate deals
• Managing your bank accounts

Durable Power of Attorney

Durable power of attorney remains effective even if you’re incapacitated. There is no time limit imposed on a durable power of attorney. You can still revoke durable power of attorney, though you may need to send out a notice that you revoked POA.

Durable power of attorney is commonly used in estate and elder care planning. It’s hard to anticipate when someone might lose their mental capacity, whether due to injury or illness. Durable power of attorney ensures that there is someone appointed attorney-in-fact.

Medical (Healthcare) Power of Attorney

Medical power of attorney is crucial because it allows your chosen agent to make healthcare and treatment decisions if you can’t. This works hand-in-hand with a Living Will, and you should also consider creating an Advance Healthcare Directive.

Advance Healthcare Directive: A document that details your medical wishes and talks about what medical care you do not want. Typically goes over important life support choices. Crucial for you, your loved ones, and your agent so that your wishes are clear. Minimizes regrets and guilt in case your agent has to make a difficult choice.

Limited (Special) Power of Attorney

Limited powe of attorney grants specific powers for a defined task. For example, you can choose an agent for only one purpose, such as selling a house.

Springing Power of Attorney

A springing power of attorney only “springs” (takes effect) in case you become incapacitated. Triggering events other than incapacity can also be chosen. Unlike a durable power of attorney that lasts unless you specifically rescind it, a springing power of attorney needs to meet certain conditions before it can take effect.

Tip: Combine a Durable Financial POA and a Healthcare POA for better protection.

Why Having a Power of Attorney Is So Important

Prevents Court Intervention

If you haven’t signed a POA, the court might deem you legally incompetent and unable to make your own life decisions. The court would appoint someone for you. If you want to regain your rights, you would have to go through a court process of proving you are competent.

A POA lets you avoid lengthy, expensive, and likely humiliating court processes.

Protects Your Finances and Property

A POA ensures that your important bills are paid, taxes are filed, and investments are managed even if you’re ill or injured. Many financial obligations and opportunities are time sensitive. If you are unreachable but the choice must be made immediately, you could lose out on significant earnings or end up with terrible debt.

Safeguards Your Healthcare Wishes

Most people find it tough to think about serious healthcare decisions, like end-of-life care, organ donation, nursing homes, and DNR. However, it is important to set up a power of attorney and healthcare directive so you can be in control of your medical treatment options. Your chosen agent can make decisions consistent with your values and medical preferences even if you are incapacitated.

Reduces Family Conflict

Without a POA, what happens if you get into an accident or can’t be reached? What happens if there is an emergency that will majorly impact the family? Your loved ones might disagree over what is the best decision.

Clear legal authority can prevent disputes among relatives during stressful times.

Offers Peace of Mind

If you prepared a power of attorney document properly, ahead of time, you can have peace of mind in knowing someone you trust can step in during emergencies. This avoids chaos and ensures better crisis management.

Real-Life Scenarios: Why Timing Matters

Example 1

If a car accident leaves you temporarily unconscious, your spouse without POA wouldn’t be able to access your accounts to pay the bills. And oh are there terribly many bills during the week you are unconscious. This ends up costing you thousands extra. In addition, your spouse has to worry about what medical treatment you will get because the hospital has to adhere to certain regulations when you didn’t sign a POA.

Example 2

An elderly man develops fast-acting dementia but never signed a POA. His loved ones tell him to sign a POA now, and he tries, but it’s too late. He isn’t considered legally competent.

His adult children must go through court to gain access to his finances and make medical decisions. Until the lengthy process is completed, the court decides what happens to the man’s care.

Warning: A POA only works if it’s signed while you’re still legally competent.

How to Choose the Right Agent

Key traits to look for

Trustworthiness. That’s the number one requirement to keep in mind. You want an agent who will actually carry out your wishes.

Reliability in high pressure situations. Some loved ones crack under pressure and cannot make major life decisions on your behalf even if they are trustworthy.

Strong communication and organizational skills. This is less of a requirement, but still good to think about. These skills can help the agent represent you better.

Financial sense. If you’re signing a POA for financial purposes, it’s best to choose someone financially literate and responsible. They might be making real estate deals or managing investments for you.

Who to avoid

People with poor money habits. They may have the best intentions, but still end up making the wrong financial choices on your behalf.

Potential conflicts of interest. Depending on your financial or personal situation, there might be a conflict of interest with the agent you have in mind.

Tip: Name a backup agent in case your first choice can’t serve.

Pro tip: If you have a complex estate, consider a professional fiduciary or corporate trustee.

How to Create a Power of Attorney

1. Decide what type(s) of POA you need

Your POA can be financial, medical, or both. It can be durable (active until revoked) or limited.

You can always change your POA details by following the proper legal procedures.

2. Choose your agent and alternate

Carefully consider who would be the best agent for you.

Also choose an alternate in case your agent cannot or is unwilling to represent you. Having a backup agent can resolve many issues before they arise.

3. Use a trusted platform like LegalZoom

We highly recommend a trusted tool like LegalZoom to create valid POAs. LegalZoom is great for state-specific, legally valid POA documents.

4. Sign and notarize

Many states require notarization or witness signatures for a POA to be valid. Make sure your POA is properly signed and notarized.

5. Distribute copies

Remember to give copies to your agent, doctor, and relevant financial institutions. This reduces chaos and confusion in case an agent needs to step in and act on your behalf. Keeping physical and digital copies helps.

6. Review regularly

After you’re done creating and distributing copies of your power of attorney, don’t forget about it in the back of your desk drawer. Make sure you make updates to your power of attorney as needed, especially after major life events such as:

• Marriage
• Divorce
• New children
• Moving to a new state or country

How a Power of Attorney Fits Into Your Estate Plan

It’s recommended to have a full estate plan. Many estate plans include:

Will: Decides what happens after death. Needs to go through probate.

Trust: Manages assets and avoids probate.

Healthcare Directive: Outlines end-of-life care preferences. Helps the person with medical POA.

Life Insurance: Affordable policies like Ethos provide immediate financial support in case you pass away. Some policies accumulate cash and let you borrow against them as needed.

A solid estate plan helps ensure better protection for both life and legacy.

Common Mistakes to Avoid

Waiting too long to create one

You can wait until you feel more comfortable, but don’t delay the creation of a power of attorney too long. Accidents and illnesses can happen abruptly. POA can even be helpful if you’re traveling and can’t be reached.

Not specifying when powers begin or end

If you only want to give power of attorney to someone for a certain duration, make sure to specify it in the document.

Choosing the wrong person

There is no perfect choice when it comes to power of attorney, but it is still important to carefully consider who would carry out your wishes the best. They should be reliable, trustworthy, and willing.

Forgetting to update after life changes

Major life changes, such as divorce, often result in a need to update your power of attorney. Make sure to revoke POAs and change the backup alternates as needed.

Not providing access to important documents and passwords

Make sure your agent has access to your important documents and account passwords. This may include your will, bank accounts, cryptocurrencies, social media accounts, and more.

The Cost of Not Having a Power of Attorney

Financial burden

A lack of POA can result in costly court fees, legal delays, and frozen accounts.

Emotional toll

Just like not having a will, not creating a power of attorney can lead to family stress and disputes.

Loss of control

Power of attorney gives you control over who will manage your affairs and assets. If you don’t have it, court or state law will end up making all the legal decisions, not you.

Prepare Now, Be Protected Later

Power of attorney gives you control even if you can’t speak for yourself. Don’t wait for an emergency. The earlier you create your POA, the more protected you will be. Your assigned agent can make important legal, medical, and financial decisions on your behalf.

Use LegalZoom to create a valid POA document today and share it with your loved ones.