Estate planning goes beyond leaving your assets and property to loved ones after you are gone. It also involves planning for other eventualities, such as mental or physical incapacitation. This is where the power of attorney comes in.
A power of attorney (POA) is a legally binding document that allows you to designate someone who will act in your capacity. The person you appoint, known as the agent, gets legal authority to represent you in financial and medical decisions, depending on the scope of their mandate.
Types of power of attorney
As mentioned, the power of attorney document specifies the agent’s authority. For instance, you can have a health care POA, which allows the agent to make health-related decisions on your behalf, and a financial POA, which gives the agent authority to manage your finances.
That said, there are several types of power of attorney, as detailed below.
- A general power of attorney allows the agent to act on your behalf but is terminated when you become incapacitated.
- A durable power of attorney is similar to general POA, but the agent continues to act on your behalf after incapacitation.
- A special or limited power of attorney gives the agent legal authority to act in specific areas.
- A springing durable power of attorney gives the agent legal authority to represent you only after a specified event occurs.
It is crucial to understand the type and range of the POA document you sign so that you can rest assured that everything is in place if you are incapacitated.
Why is a power of attorney necessary?
Since your family does not automatically have the right to act on your behalf when you are physically or mentally incapacitated, having a power of attorney will save them a lot of trouble. Without one, your loved ones will have to go through a long process to get such legal authority.
Many other things can go wrong if no one is there to take charge of your affairs, such as financial mismanagement. Therefore, it is worthwhile to learn more about the workings of this crucial estate planning tool and how you can incorporate it into your estate plan.