What is a Power of Attorney?

 Power of attorney documents are a part of your estate plan. A power of attorney document covers or names a person to make decisions for you in different scenarios. It may serve a specific purpose, or it could be a durable general power of attorney – it covers anything and everything in your name and it lasts beyond your capacity.  It might be because you’re incapacitated and cannot make decision for yourself over your finances. Or it might be for certain transactions because you are out of town. However, power of attorney documents expires at the time of your death and are no longer valid in the decision making process.

When does a Power of Attorney Become Effective?

A Power of Attorney can become effective in different ways, depending on the terms of the document:

  1. Springing POA: This type of POA becomes effective only when you become incapacitated or mentally unable to make decisions on your own.
  2. Immediate POA: This grants authority to your agent immediately, even if you are still capable of making decisions yourself.

A lot of times people will ask, and we want to make sure that their power of attorney (POA) has the right to make changes to their estate documents and it could be in limited scope. For example, the power of attorney might say, “I give my agent the power to change the beneficiaries on the retirement account. I give my power of attorney the right to change beneficiaries in my trust document.” This is referred to as a limited power of attorney. In a broader authority, such as healthcare, powers of attorney for healthcare may act in different and a wider range of scenarios regarding your health. In addition to power of attorney for healthcare, there are also a power of attorney regarding finance.

The Importance of Consistency Between Documents

Problems can arise if your POA allows your agent to make changes to your estate documents, but your trust specifies that only the trust creator can make such changes. To avoid this issue, it’s crucial to ensure that the provisions in your trust align with your POA. If your goal is for your POA to allow your agent to modify your estate plan in the event of your incapacity, the trust must explicitly grant this authority. Otherwise, you may end up with conflicting documents, which can lead to confusion or legal challenges.

This is a common issue when individuals work with document preparation services or attorneys who are not well-versed in estate planning. Inexperienced professionals may create documents that are inconsistent or fail to function as intended. Make sure that if you have a trust in place and a POA in place over your financials, make sure your power of attorney and trust work together and there are no inconsistencies.