What Is Power of Attorney and How Does It Work?

Power of attorney (POA) sounds like a legal concept, but it doesn’t have to involve lawyers at all. The American Bar Association states that a power of attorney gives one or more persons the authority to act on your behalf as your agent. This power can be temporary or permanent, and it can be limited to a specific activity (such as buying and selling assets) or covering any activities. You can confer this authority to your lawyer, but you can also direct it to your spouse or best friend. You can also make such a determination effective immediately or subject to some potential future occurrence (such as your future inability to act on your own behalf).

States Have Different POA Rules

Each state can determine how to regulate power of attorney, but most have several options for the grantor to use. In California, for example, there are four types:

•       General: with this designation, your designee can make almost any financial or other decision that you could make yourself. The exception is that they cannot transfer your money or assets to themselves.
•       Limited: a limited power of attorney specifies which aspects of your affairs the agent can handle. It might include selling stock but not real estate, for example, or paying bills but not disposing of property.
•       Durable: in California, any power of attorney granted becomes void if the grantor becomes incapacitated unless it is granted explicitly as a durable power. The reason is to prevent unscrupulous agents from taking advantage of incapacitated individuals.
•       Health Care: this is a medical power of attorney, which is part of an advanced health care directive and is always a durable grant, allowing the designee to make medical treatment and end-of-life decisions for the grantor.

Texas has similar options, along with a springing power, which only goes into effect if the grantor becomes incapable of managing their affairs. Until then, the agent has no authority, and if the principal recovers capacity, the agent would revert to no role again. Like almost every other state, Texas also has its own version of a health care power of attorney.

The Uniform Law Commission, a nonprofit cooperative association that recommends changes to individual state laws in areas where greater uniformity is viewed as a positive goal, drafted a Uniform Power of Attorney Act in 2006. Twenty-six states have adopted the provisions.

What Circumstances Warrant Using a Power of Attorney?

When a power of attorney is being used for financial matters, such as buying and selling assets (as opposed to a medical or health care power), the motivation is often convenience or capacity. If you want your agent to act on your behalf, that is the pursuit of convenience and would typically be the reason to grant a limited grant for specific purposes.

On the other hand, if a power of attorney is granted as durable, the designee is likely given it due to the person's diminished capacity. In either situation, the agent holding a power of attorney has a fiduciary responsibility to the person for whom they are allowed to act.