Planning for the Unexpected: Why You Need a Durable Power of Attorney
Imagine you suddenly become incapacitated due to illness, injury or old age — or just don’t feel as sharp as you used to. Who would make decisions about your health care, finances and overall well-being?
If you’ve created a durable power of attorney, the answer is easy. This legal document empowers someone you trust to make decisions on your behalf when you’re unable to do so.
Whether you’re facing a medical emergency or simply need help managing your money, understanding and utilizing a durable power of attorney can be a game-changer.
What Is a Durable Power of Attorney?
A durable power of attorney (DPOA) is a legal document that grants authority to a person — known as an agent or attorney-in-fact — to act on your behalf if you’re unable to make decisions yourself.
The agent’s authority over your money and health care decisions can be very broad or very narrow.
A broadly drafted document can give the agent the same powers you have to manage your money and medical care. A narrowly drafted power of attorney might only grant the agent authority to carry out a limited scope of transactions, such as dealing with one particular bank.
Durable powers of attorney are authorized by state law, so the requirements for creating one can vary from state to state. If you own real estate or other property in a second state, you should consult with a lawyer to make sure your power of attorney covers those assets as well.
Decisions outlined in a power of attorney aren’t written in stone. As the principal, you can modify or revoke your DPOA at any time.
Different Types of Power of Attorney
What sets a durable power of attorney apart from a nondurable power of attorney is that it remains in effect even if you become incapacitated.
That’s important. Otherwise, your agent can’t continue acting on your behalf when you need it the most.
There are two basic types of durable powers of attorney:
- Financial power of attorney: This authorizes your agent to handle your financial affairs, including paying bills, managing investments, filing taxes and handling real estate transactions.
- Medical power of attorney: With this, you designate someone as your health care proxy to make medical decisions on your behalf if you’re unable to do so. This includes decisions about medical care treatments, surgeries, prescription drugs and long-term care.
So, do you need both a financial POA and a health care POA?
It can be a good idea to have both, according to Ryan Byers, an attorney at Rammelkamp Bradney, P.C., in Illinois.
“Most states I’m aware of require separate health care powers of attorney and financial powers of attorney,” said Byers, whose experience involves elder law litigation.
You can execute a durable financial power of attorney without executing a durable health care power of attorney, and vice versa.
“But executing both documents will give the people who are assisting you with your affairs the most authority and flexibility,” Byers said.
Aside from durable POAs, there are two other types of power of attorney:
- Nondurable power of attorney: This becomes effective immediately once it’s signed but expires when the person who granted it becomes incapacitated.
- Springing power of attorney: This document doesn’t become effective until a specified event occurs, such as the incompetence of the person who executed the document.
Some jurisdictions have streamlined the process by eliminating these distinctions. They no longer use the terms durable, nondurable and springing.
However, you can still customize these documents — preferably with the help of a lawyer — to meet your specific needs.
“These documents typically retain the ability for a person to make their power of attorney effective at a later date, even if they don’t use the word ‘springing’ to describe it,” Byers said.
How to Create a Durable Power of Attorney in 6 Steps
Whether it’s due to illness, injury or simply the natural progression of aging, having a plan in place to protect your interests is important.
Here is the step-by-step process of creating a durable power of attorney.
1. Find Your State’s Power of Attorney Form
States usually have their own durable power of attorney forms online that you can print and fill out. Many financial institutions also make power of attorney forms available to customers.
You can find the template for your specific state by googling “durable power of attorney [your state].”
2. Choose an Agent
Selecting the right person to be your agent is crucial.
Look for someone who is reliable, responsible and capable of making complex decisions about your health and finances. Be transparent with potential agents about the responsibilities involved.
You can choose anyone over the age of 18 to be your agent, including a family member, a friend or even a financial advisor.
It’s also a good idea to designate successor agents in case your first choice is unavailable or unwilling to step in.
3. Add Specifics to Your Power of Attorney
Consider the type of durable power of attorney you want. Do you need someone to manage your finances, make health care decisions or both?
Decide how much authority you want to grant your attorney-in-fact. By being specific, you can avoid misunderstandings later on.
4. Consider Speaking to an Attorney
While it’s not required, consulting with an attorney who specializes in estate planning or elder law is a smart idea.
A lawyer can ensure your durable power of attorney is legally valid, and address any concerns or questions you may have.
An estate planning attorney can also make sure the document accurately reflects your intentions and meets all necessary legal requirements.
5. Sign and Notarize
Follow your state’s legal requirements to make the document valid. This might involve signing the document in the presence of witnesses and having it notarized.
Ensure all parties involved understand their roles and responsibilities.
6. Provide and Save Copies
Finally, inform relevant people about your durable power of attorney, such as health care providers, financial institutions and family members.
You should also give a copy of your medical durable power of attorney to your doctor and health care facility.
Provide copies of DPOA forms to your agent, successor agents and other key stakeholders who need to know your wishes.
Keep the original document in a secure location that you can easily access when needed.
Other Documents for Estate Planning
A durable power of attorney should be just one part of your estate plan or advanced care plan. Advanced care planning refers to preparations made to address unforeseen circumstances in the future, such as becoming incapacitated. It shares many similarities with estate planning, which focuses more on what happens to your assets after you pass away and power of attorney ends.
Consulting with a lawyer to get all these documents in order is a good move. But here’s an overview of what you might encounter.
- A last will and testament: A will designates one or more executors who will settle your affairs after you die. It gives instructions on how you want your property distributed, and names guardians for your children.
- A living trust: Not everyone needs a living trust. This legal arrangement appoints a person, called the trustee, to hold and distribute property and funds on your behalf when you are no longer able to manage your affairs. Ownership of assets are transferred into the trust, which is a separate legal entity. This helps avoid probate after the account holder dies.
- A living will: A living will is a legal document that details which medical treatments you want — or don’t want — if you’re ever unable to make medical decisions for yourself. It can include instructions about life support and ventilators. A living will is also called an advance directive, especially when it’s paired with a durable power of attorney.
Power of Attorney FAQ
The principal can revoke a durable power of attorney at any time if they are mentally competent to do so. The power of attorney document itself can also include specific conditions that limit the agent's authority.
Concerned individuals can also petition the court to review and potentially revoke or modify a power of attorney if the agent's actions are ruled harmful or against the best interests of the principal.
You have the right to revoke or change your durable power of attorney as long as you are still mentally competent. You can do this by creating a new document that revokes the previous one.
While a durable power of attorney is usually valid across state lines, there might be different requirements or regulations. It's wise to consult with an attorney if you move to a different state to make sure your document complies with the new state's laws.
Yes. A durable power of attorney is designed to be effective during the principal's lifetime and ceases to have legal authority once they die.
To handle someone’s affairs after death, you must be appointed as the executor of their estate, either in the person’s will or by a court of law.
Rachel Christian is a Certified Educator in Personal Finance and a senior writer for The Penny Hoarder. She focuses on retirement, Medicare, investing and taxes.