Many people feel nervous at the thought of a power of attorney. It can be intimidating to consider giving another person or agent the authority to make financial decisions on your behalf.
There are valid reasons to consider a power of attorney if the need arises. In layman’s terms, a power of attorney is a legal document that allows someone (an individual or an entity) to conduct business on your behalf. There is more than one type of power of attorney. These include both financial and medical.
A medical power of attorney should contain specific information about who can make medical-related decisions when someone becomes incapacitated and cannot make these decisions for himself or herself. Experts generally agree that financial powers of attorney should not include medical information.
A financial power of attorney can be either durable or nondurable. It is important to know the difference and when you may need one or the other. Most people consider durable powers of attorney when there is a chronic illness involved or a date in the future when it might be foreseeable that illness can be disruptive to someone.
Financial Areas to Consider:
Regardless of the type of power of attorney chosen, there are broad areas of consideration concerning finances. These include (but may not be limited to) the following types of financial transactions:
Each state allows for fairly standard rights to be allowed through a power of attorney, although you want to do specific research in your state if there are unusual financial circumstances to consider.
Nondurable Power of Attorney:
A nondurable power of attorney is generally used for limited transactions. For example, if someone needs to grant authority for a single transaction, such as a stock trade, a nondurable power of attorney would be most applicable. Another reason to use a nondurable power of attorney would be if someone were traveling and unable to conduct business from home. Some states refer to this type of power of attorney as a special power of attorney.
Durable Power of Attorney:
A durable power of attorney is the one that often comes to mind. These are the legal documents that can start immediately and allow someone to act on your behalf until it is either revoked or upon your death. For individuals who are facing a chronic, debilitating illness or who may be preparing for a future incapacitation (such as a possible nursing home commitment), a durable power of attorney could fit these situations.
A durable power of attorney can be written so that it can be invoked at a future point in time. For someone with a chronic or potentially debilitating illness on the horizon, this type of instrument may be best to use. Usually a physician or other recognized authority will designate the time when an individual is no longer competent to manage their own legal affairs. At that point in time, the power of attorney will “spring” into place, allowing your agent to begin managing your financial obligations. For this reason, sometimes you may see references to a “springing” power of attorney.