The term power of attorney refers to a legal authorization that gives a designated person the power to act for someone else. As such, a power of attorney gives the agent or attorney-in-fact the authority to act on behalf of the principal. The agent may be given broad or limited authority to make decisions about the principal’s property, finances, investments, or medical care.
There are two main types of power of attorneys, financial and health care.
How a Power of Attorney Works
A power of attorney is a legal document that involves the agent or attorney-in-fact, and the principal. It is used in the event of a principal’s temporary or permanent illness or disability, or when they can’t sign necessary documents. The principal must choose a power of attorney who they trust to handle their affairs for them.
Documents can be retrieved online or through a lawyer. Both parties must sign the paperwork. And a third party is usually required to witness it.
Most power of attorney documents authorize the agent to represent the principal in all property and financial matters as long as the principal’s mental state of mind is good. If the principal becomes incapable of making decisions for themselves, the agreement ends immediately.
A power of attorney can terminate for many reasons, such as when the principal revokes the agreement or dies, when a court invalidates it, or when the agent can no longer carry out the responsibilities outlined. In the case of a married couple, the authorization may be invalidated if the principal and the agent divorce.
Two kinds of power of attorney: Health Care and Financial
Health Care Power of Attorney
The principal can sign a durable power of attorney for health care, or health care power of attorney, if they want an agent to have the power to make health-related decisions. This document, also called a health care proxy, outlines the principal’s consent to give the agent power of attorney privileges in the event of an unfortunate medical condition.
Financial Power of Attorney
The financial power of attorney is a document that allows an agent to manage the business and financial affairs of the principal, such as signing checks, filing tax returns, mailing and depositing Social Security checks, and managing investment accounts when and if the latter becomes unable to understand or make decisions.
The agent must carry out the principal’s wishes to the best of their ability, at least to the extent of what the agreement spells out as the agent’s responsibility. A financial power of attorney gives that individual a wide range of power over one’s bank account, including the ability to make deposits and withdrawals, sign checks, and make or change beneficiary designations.