The term "power of attorney" (POA) is a popular one that is recognized by many people around the country. While the term may be popular, its correct definition is often not as widely regarded. When it comes to understanding a POA and how it works, it helps to understand what it is and what it is intended to do.
A general POA is something that allows other people or legal entities (corporations, for example) to make legal decisions on your behalf when you are unable. For example, if you are getting ready to close on a commercial property and suddenly get called out of the country on an emergency, the person or entity you named as your POA can legally sign the documents for you. The POA is also in effect when you are declared to be physically or mentally unable to no longer handle your own business dealings.
With a POA, someone else could negotiate business deals, sign official documents, create corporat gifts, and settle insurance claims on your behalf. A general POA is a very important part of a strong estate planning program.
A health care proxy is a type of POA that indicates who can make decisions for you regarding medical procedures when you are no longer able to make decisions on your own. This type of POA is only for health care decisions, and it may or may not include a living will. In some states, the health care proxy can include the living will, but many people prefer their living will to be a separate document to avoid confusion.
A special POA can be in effect for a focused time period, or it can only be for certain types of business dealings. For example, if we use the example mentioned earlier about closing on a commercial property while you are out of the country, you can have a special POA set up to allow someone to do that on your behalf. A special POA is usually used in advance of situations where the person getting the POA knows they will not be able to take care of their business.
One of the common misconceptions about a POA is that it automatically goes into a effect when you become mentally incapacitated. The truth is that only a durable POA remains in effect after it has been determined that you have lost your ability to take care of your own business. A standard POA is no longer in effect if you are considered mentally incapacitated, while a durable POA remains in effect at all times. If you want your appointed POA representative to be your permanent representative, then make your POA durable.
When putting together an estate planning program, there are several elements that are essential to the program's success. A strong will is going to help matters, and a good trust can make sure that the family estate is divided based on the last requests of the trust owners. But an estate planning program without a quality POA in place is incomplete. When you talk to your attorney about estate planning, be sure to include mention of the types of POAs you want and how they are to be worded.