Understanding Powers of Attorney

March 13, 2018 | by the National Care Planning Council

A power of attorney is a legal instrument which grants unto another person -- the agent -- the authority to act as a legal representative and to make binding legal decisions, medical treatment decisions and financial decisions on behalf of the person granting the power. It should be noted that a power of attorney is limited in its scope to the powers granted within the document. A power of attorney can have very limited scope and only give the agent the authority to conduct a one-time action. Or a power of attorney can have wider scope and allow an agent to conduct all financial affairs on behalf of the grantor including gifting and the ability to enter into real estate transactions. A power of attorney may also authorize certain individuals to make medical treatment decisions on behalf of the person granting authority.

A power of attorney can in no way take away the personal rights of anyone creating the document. As long the person granting authority remains competent to manage his or her own legal affairs, the document can be canceled at any time. It is important to remember that cancellation of a power of attorney will not stop someone with that power to continue to conduct business on behalf of the person granting authority. If the agent is never notified or is intent on abusing the power, there is no government or community mechanism in place to stop him or her. This means that all original copies of the power of attorney must be accounted for and taken back if it is canceled.

Here are the common types of powers of attorney.

General Power of Attorney or Non-Durable Power of Attorney

This is the form that is most often used when someone who is competent authorizes another person to transact business for the competent person. These documents are typically used if someone is indisposed and must make some sort of financial transaction and elects a trusted person to act as a power of attorney. If the person granting power of attorney becomes incompetent to handle his or her own legal affairs or dies, a general power of attorney is no longer in effect and is automatically canceled.

Durable Power Of Attorney

Most states have adopted the Uniform Durable Power Of Attorney Act, which allows a power of attorney with the proper language to continue in effect even though the maker of the document has become incompetent. This particular type of document is very useful when handling the affairs of someone who has become impaired in decision-making. Unfortunately, it also gives broad powers to the agent to act without any direct oversight from an incompetent maker.

It should be noted that a power of attorney does not take away the right of the maker of the document to make his or her own decisions. Even though that person may be incompetent, that person's decisions concerning his or her property or actions are still valid. The only way to take away this right is for a court to declare the person incompetent and to appoint a guardian. There may be situations where this court action is necessary to ensure the safety of the person who is not acting rationally or to protect others from this person.

As a general rule, mild cognitive impairment does not mean that a person is incompetent to handle his/her own her affairs. If it appears that a loved one is heading down the road to further incompetency, legal documents such as a durable power of attorney could be drawn up. Once a loved one is considered incompetent, a power of attorney cannot be created and other means of dealing with impaired decision-making must be instituted such as guardianship or conservatorship.

Inherent in any power of attorney is a fiduciary responsibility to act for the person creating the authority as if the agent were the maker and were implementing prudent financial decisions for himself. Any agent not acting as a responsible fiduciary could take advantage of the incapacitated person who made the power of attorney. In addition, without oversight, an unethical agent could make off with all of the assets. If there are other family members involved, this could result in nasty family disputes and court proceedings.

Great caution should be taken when creating a durable power of attorney. Many people do not think of the consequences of such a broad-powered document and create these arrangements in too much haste. It is extremely valuable to consult a knowledgeable and impartial third party such as an attorney when creating a durable power of attorney in order to avoid the pitfalls mentioned here.

Springing Power Of Attorney

A "Springing" Power of Attorney becomes effective at a future time. That is, it "springs up" upon the happenings of a specific event chosen by the power of attorney. Often that event is the illness or disability of the maker. For a person wishing to retain the most control of his or her affairs, a springing power of attorney is often a good choice.

Health Care Power Of Attorney

Some states authorize a special form of "Springing" Power of Attorney called a Health Care Power of Attorney. The Health Care Power of Attorney is a document that designates someone to speak for the patient, authorizing certain medical treatment, when he or she can't, and it takes precedence over a living will. This is because health care providers consider a consultation with a proxy a better alternative than relying on a living will, since medical treatment or conditions may have changed since the will was signed.

The health care power of attorney can be used in situations where someone is suffering from a terminal illness or is in a persistent vegetative state. Thus, this document can take the place of a living will which is typically used for these situations. Specific instructions can be given to the agent concerning what to do and what treatments to prescribe under these conditions. The advantage of using a power of attorney over a living will is the same as mentioned above. A living will is a document representing the wishes of the person who cannot communicate. A power of attorney represents a trusted individual acting on behalf of the person who cannot communicate. Having a live person make decisions under conditions with various outcomes not foreseen in the living well is an advantage not only to the family but to the treating physicians.

It's important for the patient to give the health care power of attorney to someone he or she believes will follow his or her wishes. The patient can also exclude certain people from making decisions. If the patient can communicate the document has no effect. Also the document can be revoked at any time and is not binding on the patient. This healthcare power of attorney arrangement will be discussed in greater detail below.

Understanding the Specific Powers in the Document

A person who casually downloads a standard durable power of attorney document from the Internet and fills it out and has it notarized may be making a big mistake. Once the person who creates the power of attorney is no longer competent, the document cannot be changed. For those persons needing eldercare, certain powers are needed. These include the power to engage in real estate transactions and the power to gift. These powers are not inherent in a typical simple durable power of attorney. In some states, the language granting these powers is very specific and must be properly written in the document.

The powers mentioned are extremely important when the principal maker ends up in a nursing home, cannot make his or her own decisions and is receiving Medicaid. No Medicaid planning can take place without the ability to make real estate transactions and to gift. It is extremely important that an attorney is involved in drafting a power of attorney that will be used for Medicaid planning purposes in order to make sure it is valid when the time comes.