A power of attorney is a written document in which one person (the principal) appoints another person to act as an agent on his or her behalf. It is a simple and effective estate planning tool especially for incapacity. The agent is usually called the “attorney-in-fact.”
Powers of attorney are routinely granted to allow the agent to take care of a variety of transactions for the principal, such as executing a stock power, handling a tax audit, or maintaining a safe-deposit box. Powers of attorney can be written to be either general (full) or limited to special circumstances. A power of attorney generally is terminated when the principal dies or becomes incompetent, but the principal can revoke the power of attorney at any time.
Durable Power of Attorney
A durable power of attorney becomes effective upon the principal becoming incompetent or unable to manage his or her affairs. With a durable power of attorney, a principal can appoint someone to handle his or her affairs after they become incompetent, and the document can be crafted to confer either general power or power in certain limited circumstances. Because no judicial proceedings are necessary, the principal saves time and money and avoids the stigma of being declared incompetent.
Durable powers of attorney are routinely used as one of the essential documents in a basic estate planning package.
General Power of Attorney versus Special Power of Attorney
A general power of attorney gives broad authorizations to the agent. The agent may be able to make medical decisions, legal choices, or financial or business decisions.
A special power of attorney narrows what choices the agent can make. You can even make several different special powers of attorney with different agents for each.
For example, you could create a special power of attorney which only allows your spouse to make medical decisions on your behalf. You could create another special power of attorney which would grant a business partner the ability to use certain assets to care for your business in the event you become incapacitated.
Irrevocable Power of Attorney
A power of attorney is revocable if the principal reserves the right to revoke the power at any time. Once the principal revokes the power, the agent can no longer act on the principal’s behalf. But a power of attorney can be made irrevocable if the document includes a provision that specifically states that the principal gives up the right of revocation or otherwise indicates that the power is irrevocable. As a practical matter, an irrevocable power of attorney is rarely used and is typically limited to a specific purpose.