Granting someone power of attorney (also known as designating an attorney-in-fact) is the legal process by which the person granting the power (principal) gives another person (agent) the legal authority to act for the principal. Powers of attorney can vary widely in their scope and function. As a part of a minimal estate plan, everyone should appoint someone they trust as a financial power of attorney and a medical power of attorney.
A financial power of attorney gives an agent authority to manage the principal’s finances and property. With a broadly drafted financial power of attorney (also called a general power of attorney), an agent can transact business on the principal’s behalf and access financial accounts. A medical power of attorney allows an agent to make medical decisions for the principal if the principal is unable to do so.
For basic estate planning purposes, it is almost always appropriate to make the powers in both a financial and medical power of attorney durable. A “durable” power of attorney allows the authority of the agent to continue even after the principal is incapacitated by an accident or illness.
All powers of attorney terminate when the principal dies. Absent a durable power of attorney, loved ones may have to go to court to obtain a guardianship or conservatorship in order to make decisions or manage the affairs of an incapacitated individual. These proceedings are public and can be lengthy and costly. Like all court proceedings, there is no guarantee what the outcome might be. By contrast, a durable power of attorney can be done quickly, making the principal’s wishes known and at a fraction of the cost of a court proceeding.
Choosing who to act as an agent is an important decision for the principal. Whomever is chosen will have a great deal of power to make decisions for the principal. A broadly drafted power of attorney essentially allows the agent to step into the shoes of the principal and do anything the principal could do. Trusted family members are an obvious choice for such a responsibility, but the agent does not have to be a relation. The same person who may be a perfect choice to hold a medical power of attorney may not be a good agent under a financial power of attorney.