A Power of Attorney (POA) can help accomplish such a wide range of estate planning goals that you will likely include one in your plan at some point. Unfortunately, the familiar nature of POAs means that they are also frequently misunderstood, misused, and abused. Executing the wrong type of Power of Attorney can be a costly mistake. To help prevent you from making a mistake, the Indianapolis estate planning attorneys at Frank & Kraft help you to understand your Power of Attorney.
What Is a Power of Attorney?
At its most basic, a Power of Attorney is a legal document that allows you (referred to as the “Principal”) to grant another person (the “Agent”) the authority to act on your behalf in legal matters and transactions. The type and extent of the legal authority you grant to an Agent depends on the type of POA you create. This is precisely where problems often occur when using a POA – the Principal grants too much authority or fails to grant enough authority to the Agent.
How Much Power Does Your Agent Need?
When deciding what type of POA you need, the first consideration is how much authority or power your Agent really needs. The answer to that question will determine whether you need to create a general or limited Power of Attorney.
- General Power of Attorney — the authority you grant in a Power of Attorney can be general or limited. A general POA grants your Agent almost unfettered power to act on your behalf in legal matters. Consequently, your Agent may be able to do things such as withdraw funds from your financial accounts, sell or encumber property and assets owned by you, and even enter into contracts in your name. Although the law places some limits on the actions of an Agent with a general POA, you should operate under the assumption that an Agent can do anything you can do once granted a general POA. Given the sweeping power granted to an Agent under a general POA, they are usually only used by spouses, a parent and adult child, or other familial type relationships.
- Limited Power of Attorney — a limited POA only grants to your Agent the limited, and specific, authority enumerated in the POA. For example, you might grant an Agent the limited power of attorney to sell a boat you have listed for sale while you are pout of the state for several weeks. Another common use for a limited POA is granting a caregiver the authority to consent to medical care for a minor child while the parent is away.
When deciding between a general and limited POA, consider who the Agent is and whether a limited POA is sufficient to accomplish your goal. Never use a general POA when a limited POA will accomplish your objective.
Should Your POA Be Durable?
Historically, the authority granted to an Agent in a POA automatically terminated upon the death or incapacity of the Principal. The problem was that the possibility of becoming incapacitated is precisely why many people want to grant someone POA. People frequently create a POA specifically to ensure that their Agent named in the POA has the authority to act on their behalf if they suffer a period of incapacity. If the POA terminates upon the incapacity of the Principal, however, it cannot help in the event of the Principal’s incapacity. To resolve this problem, the concept of a “durable” POA evolved. When a POA is made durable it simply means that the Agent’s authority survives the incapacity of the Principal. You can make both a general and a limited POA durable. When deciding if your POA should be durable, keep in mind that a traditional POA can be revoked by you at any time. If you become incapacitated, however, you will not have the ability to revoke your Agent’s authority under a durable POA. Just as with a general POA, consider who your Agent is and how much trust you have in him/her before deciding to make your POA durable.
Do You Want to Grant the Authority to Make Health Care Decisions?
One of the most common limits placed on an Agent under a general Power of Attorney is the right to make health care decisions for the Principal. In most states, including Indiana, you must execute a specific type of POA to grant someone the authority to make decisions relating to your medical care and treatment. In Indiana, you must execute an advance directive known as an “Appointment of Health-Care Representative and Power of Attorney” to appoint someone to make health care decisions for you if you are unable to make them yourself.
Contact Indianapolis Estate Planning Attorneys
For more information, please join us for an upcoming FREE seminar. If you have additional questions or concerns about a Power of Attorney, contact the experienced Indianapolis estate planning attorneys at Frank & Kraft by calling (317) 684-1100 to schedule an appointment.
Mr. Kraft assists clients primarily in the areas of estate planning and administration, Medicaid planning, federal and state taxation, real estate and corporate law, bringing the added perspective of an accounting background to his work.
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