A power of attorney (POA) is a legal document that allows you (the “principal”) to appoint someone else (your “agent” or “attorney-in-fact”) to make decisions on your behalf. This can be a crucial part of estate planning, especially when preparing for potential incapacitation. Without one, healthcare, family, business, and financial decisions may be delayed or made by someone you wouldn’t choose.
There are several types of POAs, but the two most common are durable and general. The key difference between a durable vs. general power of attorney lies in when they are effective and when they terminate.
Because a POA is a legal document with potentially significant consequences, it’s always a good idea to consult with an attorney when creating one.
What is a Power of Attorney?
A power of attorney is a legal document that lets you give someone you trust the authority to act on your behalf.
The person who grants this authority is called the “principal,” and the person who acts on their behalf is called the “agent” or “attorney-in-fact.” (They don’t have to be a lawyer.)
Powers of attorney can include financial, property, and healthcare matters.
Durable Power of Attorney
A durable power of attorney (DPOA) is a legal document that lets you name someone to act on your behalf, even if you become incapacitated and unable to make decisions for yourself. A DPOA can be effective immediately, or it can spring into effect when a specific event happens, like when your doctor declares that you’re no longer able to manage your own affairs.
A DPOA can be an important part of your estate plan, because it allows someone you trust to manage your finances, your home, or even your business if you’re temporarily or permanently unable to do so yourself.
Types of Durable POAs
There are generally two types of durable power of attorney:
- Financial DPOA: This type of DPOA allows your agent to manage your financial affairs, including paying bills, managing investments, and selling property.
- Medical DPOA (Healthcare Proxy): This type of DPOA, sometimes called an Advance Health Directive, lets you name someone to make medical decisions for you if you’re unable to do so.
General Power of Attorney
A general power of attorney (POA) is a legal document that lets you authorize an agent to act on your behalf. The agent is empowered to do pretty much anything you could do yourself.
Unlike a durable power of attorney, a general power of attorney is only valid as long as you are considered capable of making your own decisions. It’s often used for convenience if you’re traveling or temporarily unable to handle certain business.
For example, say you’re selling your house but you’ll be out of the country on the closing date. You could give someone a general power of attorney to sign the closing documents for you.
Revocation
You can cancel or revoke a general POA at any time, as long as you’re of sound mind.
Durable vs. General Power of Attorney: What’s the Difference?
The key difference between a durable and general power of attorney is how long they remain valid, especially if you become incapacitated.
- Incapacity: A durable POA continues to be effective even if you become incapacitated. A general POA ends if you become incapacitated.
- Duration: A durable POA lasts until your death or until you revoke it. A general POA lasts until you become incapacitated, die, or revoke it.
- When to Use: Use a durable POA to plan for the possibility that you might become incapacitated in the future. Use a general POA to delegate authority temporarily when you are still of sound mind.
- Revocability: You can revoke both types of POA as long as you are of sound mind.
In short: a durable POA provides long-term security, whereas a general POA offers short-term convenience.
What powers can you grant to your agent?
A power of attorney document allows you to grant a wide range of powers to your agent. Here are a few of the powers commonly granted:
- Managing your bank accounts and investments. This might mean granting your agent the power to pay your bills, file your taxes, and manage your investments.
- Buying or selling property.
- Making healthcare decisions. (Only applies to a medical POA, of course.) Your agent could be granted the power to talk with physicians, approve or disapprove of medical treatments, and make decisions about end-of-life care.
Some special powers, such as gifting assets or changing trusts, have to be explicitly mentioned in the POA document.
Power of Attorney in North Carolina
It’s important to remember that power of attorney laws vary from state to state, so the information above may not apply where you live.
In North Carolina, POAs are governed by Chapter 32C of the state’s general statutes. If you live in North Carolina, you should consult with a qualified attorney to ensure that your POA is valid and enforceable and that it reflects your wishes.
Frequently Asked Questions
What is the difference between a general and durable power of attorney?
A general power of attorney grants broad authority to your agent, but it automatically terminates if you become incapacitated. A durable power of attorney, on the other hand, remains in effect even if you become incapacitated, ensuring your affairs can still be managed. Durability is the key distinction.
What are the disadvantages of a durable power of attorney?
One potential disadvantage is the risk of abuse by the agent, as they have significant control over your assets. Another concern is that a durable power of attorney might not be accepted by all institutions, potentially causing delays or complications. It’s important to choose a trustworthy agent and seek legal advice.
What can a durable power of attorney not do?
Even with a durable power of attorney, an agent generally cannot make healthcare decisions for you (that requires a healthcare proxy or living will), change your will, or act in a way that’s not in your best interest. They also can’t delegate their authority to someone else unless the document specifically allows it. The agent has a fiduciary duty to act responsibly.
Key Takeaways
Understanding the difference between a durable and a general power of attorney is crucial. Choosing the right type of POA is an important part of planning for your future and your estate. However, you shouldn’t do it alone.
Consult with an attorney to create a POA that is valid, effective, and tailored to your specific needs and wishes. A lawyer can help you understand the potential implications of each type of POA and ensure that your document accurately reflects your intentions.
With a well-executed POA, you can rest assured that your wishes will be respected, even if you become unable to make decisions for yourself.