A power of attorney is a written instrument that you use to grant another person the authority to act on your behalf. The person to whom you grant this authority is referred to as your attorney-in-fact. As the one granting the authority, you are the principal. You can specify when the power of attorney takes effect. It can be immediate, at a future date, or on the occurrence of a future event.
Commonly, there are two varieties of power of attorney: general and durable. You would typically execute a general power of attorney to allow your attorney-in-fact to act on your behalf because, though you are perfectly capable of doing so, circumstances exist that prevent you from managing your affairs. For example, you are in the military and you get deployed, you embark on an expedition to the South Pole, you get sent to prison, etc. The general power of attorney is effective until you terminate or revoke it, you become incapacitated, or you die. You can also specify that it will expire after a certain date.
In contrast, a power of attorney that is durable allows your attorney-in-fact to act on your behalf even if you become incapacitated. In order to designate the instrument as a valid durable power of attorney (instead of general) you must include language such as “This power of attorney shall not be affected by disability of the principal,” or “This power of attorney shall become effective upon the disability of the principal,” or similar words.1 A durable power of attorney is effective until you terminate or revoke it, your court-appointed guardian terminates or revokes it, a court order terminates it, or you die.2
The following are some examples of financial matters in relation to which you can grant your attorney-in-fact the authority to act on your behalf:
- real and personal property (purchasing, selling, leasing, mortgaging, etc.);
- financial accounts (maintaining or closing current accounts; opening, maintaining, and closing new accounts, etc.);
- paying your debts and receiving money owed to you;
- access to your safe deposit box; and
- tax planning.
It is advisable to have your power of attorney notarized. If you want to grant your attorney-in-fact the authority to conduct real estate transactions on your behalf, then it must be notarized and it must also be recorded in your county office that records deeds.
Before executing a power of attorney, you must understand the importance and impact of granting these powers to someone else. Your attorney-in-fact will have complete access to personal information and private affairs to the extent that you grant it to him or her. The actions taken by your attorney-in-fact acting within the powers you granted are legally binding on you (and in some cases your estate, your successors, and your heirs) as if you yourself took those actions. In addition, third parties who reasonably rely in good faith and without negligence on your power of attorney will not incur liability for doing so.3 You should therefore not execute a durable power of attorney for financial matters without giving very careful consideration to who you choose to authorize as your attorney-in-fact.