A “Power of Attorney” appoints someone to handle your financial matters and personal business in the event you are unable to do so yourself. A general Power of Attorney appoints someone to do almost anything with your financial affairs that you could do yourself. A common use for general Powers of Attorney is for someone to be able to handle financial matters for an older relative who is in ill health. They also help younger persons who may be hospitalized for an extended time after an accident. Under a general Power of Attorney, the person appointed can do things like pay bills, apply for government or insurance benefits, sell property if necessary, transfer funds between accounts, etc. It is good advance planning to prepare a general Power of Attorney now, ahead of when you think you may need it, since no one knows when an accident or ill health may happen.
A limited Power of Attorney appoints someone to do a specific thing on your behalf. For example, if you will be working out of town for an extended time, someone at home may need to do your banking while you are gone. As another example, you may want a realtor to attend a real estate closing for you; a limited power of attorney will allow that.
The person you appoint is called your agent, or the term used in an older statute, “attorney-in-fact.” The older term, “attorney-in-fact,” did not mean the person you appointed was necessarily an attorney. Usually, your agent, or attorney-in-fact is someone in your family or a trusted friend. By law, an agent or attorney-in-fact has the duty to act in the best interest of the person who appointed them. If an attorney-in-fact or agent intentionally violates that duty, they risk civil and/or criminal liability, especially if this was done for the attorney-in-fact or agent’s financial gain.
In most cases, a Power of Attorney can be revoked, and a new person appointed. That is important if circumstances change so that the person who was originally appointed is no longer the best person to serve.
It is important to have a “durable” Power of Attorney, meaning that it is worded so as to remain in effect even if the signer later becomes mentally incapacitated. A Power of Attorney necessarily expires when the person who signed it dies. A Will is needed to appoint someone to handle the estate after one’s death, since a Power of Attorney cannot do that.
Powers of Attorney can be made so they do not take effect unless and until the signer becomes mentally unable to handle their own affairs. That is called a “springing” Power of Attorney. The other kind of Power of Attorney becomes effective as soon as it is signed. That kind of Power of Attorney can be helpful for older persons who want an adult child or trusted friend to help them now, and still allows that person to handle business on their own if they want to.
What happens if you become physically or mentally unable (either temporarily or permanently) to handle your own financial matters and you don’t have a Power of Attorney? Your family would need to have a guardian appointed by the Clerk of Court. That is expensive and takes time when your family probably already has their hands full. Having a Power of Attorney in place before it is needed is an inexpensive and more convenient alternative to a guardianship.
Kim K. Steffan is an attorney with Steffan & Associates, P.C. in Hillsborough, NC. She can be reached at 919-732-7300 or firstname.lastname@example.org.
This article was last updated in January 2020.