You’ll need a power of attorney if you ever end up in a situation where you can’t make your own decisions, like if you were medically incapacitated. This is a serious decision that comes with a lot of legal implications, so it isn’t something that you should take lightly. Make sure you know exactly what you are doing when signing power of attorney. Conversely, if someone else asks you to assume power of attorney, make sure you know what that means and that you are prepared for the level of responsibility that comes with it. Whether you’re planning your estate or simply planning ahead, here’s what you need to know.
What Does Power of Attorney Mean?
A power of attorney, also known as a letter of attorney, is a legal document that one signs to transfer control of their property to another party. The person giving someone their rights is known as the principal, the grantor or the donor. The person taking on the power is known as the agent or the attorney-in-fact.
The grantor can choose which rights to give the agent. For instance, if you have a disease that may leave you incapacitated, you can give medical power attorney to an agent to make decisions about treatment if you are unable to do so. Grantors could also give the agent the right to make financial decisions for them, including over their investment accounts. For example, if you are going on a six-month trip around the world, you may grant power of attorney to someone to help you run your rental properties.Types of Power of Attorney
As said above, there are different responsibilities you can grant using a power of attorney. The most common are as follows:
There are two additional categories that every power of attorney will fall into: durable and springing. Durable power of attorney takes effect as soon as you sign the document. Your agent immediately assumes the power you are granting them, and they keep that power if you do become incapacitated or once you take whatever actions that leave you unable to attend to your affairs.
Springing power of attorney, on the other hand, only goes into effect once you become incapacitated. This is a good option for those who simply want to ensure they’re prepared in the event that something were to happen. If you have a high risk illness, for example, a springing power of attorney lets you maintain the sole rights to make decisions for your treatment unless you become incapacitated, in which case your agent assumes the responsibility.How to Create a Power of Attorney
Creating your own power of attorney is not difficult. Here are the steps you’ll need to take:
The key to making a power of attorney work is finding the right agent to make decisions on your behalf. Your choice may depend on which type of power of attorney you are signing. For a power of attorney related to business, for example, you probably want to find someone with business experience. For legal matters, an attorney may make sense. With healthcare, it’s important to pick someone who is close to you. Your spouse, child or a close friend may make sense.
No matter who you pick, make sure you trust them to make the decisions that are the best for you. Legally, your agent only would be liable for an act of intentional misconduct. If your agent simply makes a mistake, that is not a legal issue.The Bottom Line
A power of attorney is a legal document that passes a person’s decision-making power to another person, known as an agent. You can hand over the rights to make decisions around matters like healthcare, business decisions or real estate transactions. Durable power of attorney goes into effect right away. Springing power of attorney, on the other hand, takes effect when you become incapacitated.Estate Planning Tips
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