What is a Financial Power of Attorney?

Power of attorney is a legal instrument that allows another person to act on behalf of the individual who granted the power to them. While each state has specific rules governing the designation, in most cases, you can confer it on your selected agent by completing a legal, notarized form. While the documents must be notarized, usually, an attorney is not a necessary part of the process.  

Types of POA

Several variants include a financial power of attorney and a medical authority. Sometimes one person may hold both powers, either temporarily or indefinitely. Often, the person you choose for your healthcare power of attorney may differ from your financial affairs agent.

For example, if you cannot make medical decisions, the right person to handle that responsibility would need to have a broad understanding of your views on matters like end-of-life treatments, including whether to authorize extraordinary treatments in specific circumstances. That person should know you well and be able to put aside their emotional perspective to determine what you would want to be done. In many states, a healthcare power of attorney designation is accompanied by a living will or advance medical directive, which lists the grantor's preferences in detail. Often the healthcare power of attorney is granted to a spouse, another family member, or a close friend. Healthcare POA designations are typically triggered by the individual’s inability to speak for themselves or to make medical decisions.

In contrast, you would likely grant financial power of attorney to someone who knows your business and economic interests. It can be a matter of convenience rather than necessity. For example, if you need to be present for a real estate closing but plan to be elsewhere, your POA has the authority to act on your behalf. That person might not make any decisions, functioning more as an administrator implementing your wishes. This POA designation can be broadly encompassing, allowing the designee to act for you in all financial affairs. Still, it can also be specific—perhaps limited to real estate or routine payments. One stipulation for any person designated as a power of attorney is that they may not transfer your assets or funds to themselves.

Length of service

A power of attorney designation can be effective as soon as it is recorded. This timing is often the case for financial controls if the designee is entrusted with acting on your behalf for convenience. In such a circumstance, the power is usually terminated if the person who granted it becomes incapacitated. The reasoning for this provision is to prevent the POA holder from taking advantage of the grantor’s incapacity.

The power will remain in the agent’s hands if the POA is defined as durable. Sometimes a durable power is triggered by an event such as illness or accident causing incapacity, but often it is the continuation of a prior arrangement that began when the grantor was competent. While you can revoke or alter your POA grant as long as you are capable, a durable power will remain in effect until your death or recovery if it is in place or triggered due to incapacity.