The power of attorney is perhaps the most important tool a person needs to protect financial interests if a time comes when an individual is not able to act. Signing a power of attorney is absolutely critical to ensure a person’s future independence in the event of illness or incapacity. Without it, one risks having his or her affairs managed by a court‐appointed guardian, possibly a stranger, under court supervision and often without the ability to have any input. In other words, the person literally loses financial control.

What Is a Power of Attorney?

The power of attorney is the cornerstone of a financial‐management plan. It ensures that a person’s wishes will be respected if he or she is unable to act. It is a written document whereby someone is appointed to manage that person’s financial affairs in the event of illness or incapacity.

The person executing the power of attorney (called the “principal”) appoints another (called the “attorney‐in‐fact,” “proxy,” or “agent”) who, through this legal document, is empowered to manage the principal’s financial affairs. The attorney‐in‐fact can be a spouse, a child, or someone else. That designated person can pay bills, make banking and brokerage account transactions, and even bring a lawsuit. Generally the power of attorney spells out in detail the specific powers that the attorney‐in‐fact will have.

How Is a Power of Attorney Governed?

Powers of attorney are governed by state law, which determines the process required for executing a valid power of attorney, the powers that may be granted to the attorney-in-fact, and other provisions concerning validity and duration of a power of attorney. Some states have a “statutory” power of attorney form where the principal checks off categories of powers to be given to the attorney‐in‐fact, which are then defined in detail in the statute. In most states, the attorney‐in‐fact does not have any power to make health care decisions. This requires a separate medical power of attorney (termed “health care proxy” in some states).

What Time Period Is Covered by a Power of Attorney?

Historically, a power of attorney did not survive the disability of the principal, thereby making it useless for future planning purposes. Later, the durable power of attorney evolved, so called because it is valid even after the principal’s incapacity. Thus, a durable power of attorney is a simple and inexpensive alternative to the need for the appointment of a guardian.

When Does a Power of Attorney Take Effect?
In most cases, a power of attorney takes effect when signed. This may be troublesome for someone who wishes to provide for the management of his or her financial affairs in the event of a future disability but does not want to grant broad powers to a person who could act immediately.

Who Should Be Appointed Attorney‐in‐Fact?
It is easy to say that only a trusted person should be appointed to serve as attorney‐in‐fact. However, in actuality, the idea of giving broad powers to any person to act, even a trusted person, can be discomforting. Therefore it is extremely critical to choose someone wisely. Also, the person chosen must be willing to undertake the job and have good judgment and instincts. A favorite niece in Alaska may not be the right person because she lives far away and especially if she lacks experience. Business acumen is important, but more than that is needed. Common sense, a willingness to seek professional advice, and the ability to act in accordance with the known or presumed wishes of the principal rather than in a way that the attorney‐in‐fact thinks “is best” for the principal may be more important. A corporate POA can avoid the strife often caused when a family member is selected as attorney‐in‐fact.

What Limits Do Attorneys‐in‐Fact Have?
An attorney‐in‐fact cannot make a will for the individual, or change or revoke a will. Some states do not allow an attorney‐in‐fact to delegate his or her authority under the power of attorney to another person. Contact us if you have questions about this document.