Powers of attorney: What you need to know

I see many misconceptions about powers of attorney, or POAs. Some of that is my profession’s fault because too many of us seem allergic to writing in plain English. Whatever the reason for that, the result is that a legion of POAs contain so much legalese that few people born after 1850 can comfortably read them. Hopefully this article will dispel some of the confusion.

Let’s begin with when POAs are useful. The most common scenarios generally relate to real-estate transactions and estate planning.

For example, let’s say you live in Idaho but own property on Tinian. If you want to lease that property to someone, you could market the property, talk with interested lessees, sign the ground lease, and pay the withholding tax. But more commonly, it’s easier for you to pick someone living near the property to do those things on your behalf. If so, frequently you will also want to write a POA giving limited authority to your agent (who is called your “attorney-in-fact”).

Or let’s imagine that you came down with Alzheimer, fell into a coma following a stroke, or simply became slower with age. In each of those cases, you may want to pre-select a person who can make financial and medical decisions for you. If you don’t, you run the risk that a court will have to appoint someone—usually after significant delays and legal fees have accrued.

Now that we know some of the common scenarios, let’s dive a little deeper into four types of POAs.

First is the General POA. This type of POA grants extensive authority to your agent. In fact, in many cases they have the authority to do almost anything that you could do. For instance, they could open a bank account for you—or withdraw money from your current one. Because of the nearly unlimited power bestowed by a General POA, you should rarely use them and never appoint someone that you don’t trust completely.

Second is the Special POA or, for people who prefer modern English, a Limited POA. This type of POA specifically spells out what an agent may do. If a power is not stated, then your agent can’t do it. These restrictions make Limited POAs far safer and usually the best choice if you need someone to act on your behalf for a real-estate transaction or some other business dealing.

Third is a Durable Power of Attorney. Here, the key word is “durable,” which means that the POA will remain in effect even if you become incapacitated (i.e., if you go into a coma or lose your marbles). Having a Durable POA covering medical and financial decisions (i.e., a Medical POA and a Financial POA) is an essential component of estate planning.

Fourth is a Springing Durable Power of Attorney. This time the focus is on “springing,” which identifies when the POA will take effect. In other words, a POA can take effect as soon as it is signed or after some pre-defined event. Most POAs take effect immediately. But if you have a Medical POA, a Financial POA, or both as part of your estate plan, then you normally don’t want those documents to take effect unless you become incapacitated. That’s where the concept of springing comes in handy. It allows for the estate-planning POAs to lie dormant until you become incapacitated, at which point they spring to life in time for your agent to make key decisions for you.

Now that we know the major types, let’s answer three common questions.

Do other people have to accept a valid POA? Surprisingly not. Other people, companies, and government agencies may rely on a properly executed POA. And they usually do. But not always. Banks, in particular, can be persnickety. For example, they may reject a POA if it contains unfamiliar language or was not created using that bank’s particular POA template. So, it often pays to double check in advance if the other party will accept your POA. Otherwise, you may run into unwelcome delays or worse.

Does a POA need to be notarized? Usually not. But it’s generally a good idea, especially for real-estate transactions. There are two reasons for that. One: It reduces the risk that your signature was forged, meaning that other parties are more likely to honor the POA. And two: Only notarized documents can be recorded at the Recorder’s Office, which can be helpful in some circumstances.

Finally, does a POA have an expiration date? In theory, no. But in practice, yes, because most people won’t accept a POA that’s several years old. Either way though, you should never leave people guessing about the POA’s end date. The POA should say when it will end (or state that it won’t). And if you plan for the POA to last for many years, you may want to re-execute it every couple of years to reduce the chances of other people rejecting it due to age.

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This column is for informational purposes only and is not intended to be taken as legal advice. For your specific case, consult a lawyer.