Types of Power of Attorney
A general power of attorney is one that permits the agent to conduct practically every kind of business or financial transaction—with the principal’s assets—without any restraints. Because of the great harm to the principal’s financial well-being that an incompetent or untrustworthy agent can cause with a general power of attorney, the principal should be extremely careful in choosing an agent. Additionally, the principal should maintain vigilance over the agent’s transactions in the principal’s behalf.
A special power of attorney, also known as a limited power of attorney, is created to empower an agent to perform a specific act or acts. For example, if the principal is unable to do it himself, he can prepare a special power of attorney so that the agent can complete the purchase or sale of real estate. Most powers of attorney carefully define and enumerate the scope of the agent’s authority. Thus, most powers of attorney are limited powers of attorney.
Any power of attorney can be written so that it becomes effective as soon as the principal signs it. But, the principal can also specify that the power of attorney goes into effect only upon the occurrence of some triggering event. In other words, it “springs” into effect at a later date, if ever. The triggering event can be something as simple as the principal’s reaching a certain age or when a certain calendar date oc-curs. It can also be much more specific, such as if and when a doctor certifies that the principal has become incapacitated. These kinds of springing powers of attorney enable individuals to keep control over their affairs unless and until they become incapacitated, when it springs into effect. They are also known as durable powers of attorney.
Unless a power of attorney specifically says otherwise, an agent’s authority ends if the principal becomes mentally incapacitated. On the other hand, a power of attorney may state explicitly that it is to remain in effect and not be limited by any future mental incapacity of the principal. A power of attorney with this sort of clause is called a durable power of attorney. The word “durable” means that the principal’s agent can continue to conduct business for the principal if the principal becomes incapacitated.
Because of their potential utility to individuals who lack capacity after executing them, durable powers of attorney are arguably the most important form of these versatile legal documents. Durable powers of attorney are intended to address cases wherein which the following applies:
- the principal intends the agent to have authority only if the principal becomes incapacitated.
- the principal intends for the power of attorney to take effect immediately and to REMAIN in effect regardless of the principal’s future disability.
The principal must list the specific powers under the durable power of attorney that are given to the agent and when those powers are to take effect. The agent must still act in the principal’s best interest, making decisions and using the principal’s assets only for the principal’s benefit. In North Carolina and South Carolina, a principal must record the power of attorney with the appropriate county authorities for it to be durable.
The alternatives to creating a durable power of attorney may not be what the principal intends. If the principal have not executed a durable power of attorney and subsequently the principal becomes mentally incapacitated, a court may appoint a guardian or conservator for the principal. A guardianship or conservatorship must be established by a probate court. It is usually easier and much less expensive to manage one’s affairs with a power of attorney.
Like all powers of attorney, a durable power of attorney ends or ceases to carry authority upon the death of the principal. It is fruitless to attempt to give the agent authority to handle matters for the principal after the principal’s death. Actions such as attempting to pay the principal’s debts, making funeral or burial arrangements, or transferring the principal’s property to the people who inherit it cannot be legally accomplished through a power of attorney executed by a decedent. If the principal wants the agent to have authority to conclude affairs after the principal’s death, then prepare a will must be prepared that names the agent as the principal’s executor.
In addition to the principal’s death, a durable power of attorney will end if any of the following applies:
- The principal revokes it. As long as the principal is mentally competent, he or she can revoke a durable power of attorney any time.
- A court invalidates the power of attorney. This does not happen very often; however, a court will declare a power of attorney invalid if the court finds that the principal lacked mental competency when the power of attorney was executed, or that the principal was the victim of fraud or undue influence.
- The principal gets a divorce. In Alabama, California, Colorado, Illinois, Indiana, Minnesota, Missouri, Pennsylvania, Texas and Wisconsin, if the principal’s spouse is also the agent and the two get a divorce, the authority of principal’s former spouse-agent is automatically terminated by statute. In any state, however, it is wise to revoke a durable power of attorney after a divorce and make a new one.
- No agent is available to serve. A durable power of attorney will terminate if no one is available to serve as agent. To avoid this dilemma, a principal can name an alternate agent in the power of attorney.
There are two general types of durable powers of attorney: a durable power of attorney for finances, and a durable power of attorney for health care. Depending on the terms of the document, the durable power of attorney for finances allows the agent to serve the interests of the principal in financial matters before, during, or after the agent becomes incapacitated. The durable power of attorney for health care authorizes the agent to make medical decisions for the principal if the principal cannot otherwise make those decisions. An agent’s authority over the principal’s financial and healthcare decisions can be included in the same power of attorney; however, some durable powers of attorney for finances do not give the agent the legal authority to make medical decisions for the principal. Sometimes financial and healthcare powers are combined in one document to create a durable power of attorney.
A durable power of attorney for health care differs from a living will. The durable power of attorney for health care grants a third party—the agent—the authority to make decisions for the principal about the principal’s health care. In most states, though, a living will (also called a Healthcare Directive or Directive to Physicians), is a document wherein which the principal informs his doctors of his preferences about certain kinds of medical treatment and life-sustaining procedures in the event the principal cannot communicate his wishes. The living will does not mediate the principal’s desires through an agent or other third party. If a living will is prepared properly, a physician is legally bound to respect the wishes in the living will. If for some reason a doctor finds he cannot honor the living will, he is obligated to transfer the principal’s care to another doctor who will. Living wills are fairly simple documents, with most states now providing fill-in-the-blanks living will forms.