Common Misconceptions Regarding Powers of Attorney

There are many misconceptions about what a Power of Attorney does and what it involves. It’s important for you and your loved ones to understand these misconceptions in order to be thoroughly prepared.

Read below to learn more about these common misconceptions:

If You’re Legally Incompetent, You Can Sign A POA

You can’t sign any legal document or appoint a power of attorney if you are in any way legally incompetent or incapacitated.

Many people assume if their relative is deemed incompetent due to incapacitation, then they will still be able to sign a power of attorney - but this is not the case.

Only individuals who are mentally competent can appoint a power of attorney. There is a big difference between being able to physically sign a document and understanding exactly what is being signed. If an incompetent individual signs a legal document, it will not be valid.

It’s OK To Use A POA Document Found Online

While it may be easy to find power of attorney documents online, it typically isn’t a good idea to use them.

Because every circumstance is unique, a power of attorney should reflect the specifications of that circumstance. A POA should be based on decisions and necessary care. It is important that such decisions are made on behalf of the person in focus. 

It’s recommended that people refrain from using online-generated power of attorneys and rely on custom drafted versions to best achieve desired planning goals. 

When you buy a POA online, you could be purchasing a document that:

• Doesn’t cover all of the legal requirements of your state

• Doesn’t represent details that are appropriate to your situation

• Isn’t up to date

• Lacks important authorities

• Is deceptively simple

• Is easily abused 

A POA Allows The Agent To Do What They Want With Your Assets/Estate

Under a POA, the agent, by law, has an obligation to make financial decisions that are in the best interest of their client.

Your agent only has specific powers granted by the power of attorney. Think of the agent as a caretaker of your assets. Your agent can’t do whatever they want with your assets and the power of attorney does not give your assets to your agent. In other words, your agent is responsible for managing things for your benefit, not theirs.

Many people are concerned that if they get a power of attorney, the agent will take advantage of their assets and mismanage their affairs. This is a valid concern, because a power of attorney can give the agent a wide range of authorities. However, your agent is legally obligated to do what is in the best interests of the person who gives the power of attorney.

To avoid concern, you should carefully choose and appoint somebody you thoroughly trust. Choosing an agent with integrity is important!

There Is Only One Standard POA

A power of attorney document can, and should, vary depending on the needs of the principal (i.e., the person giving the power of attorney). 

While each state has its own “statutory” power of attorney, this type of power of attorney is intended to be “one size fits all” and is often inappropriate for the individual’s needs.

For this reason, a power of attorney should be drafted by an experienced and reputable attorney in order for it to suit the principal’s needs.

The most common types of power of attorney include:

• General Power of Attorney

• Limited Power of Attorney

• Durable Power of Attorney

What is a General Power of Attorney?

A general power of attorney usually includes broad authority to take many different financial actions on behalf of the principal. These powers are likely to include the ability to buy, sell, or manage property, bank accounts, and other types of assets.

Actions and authorities are spelled out in the document itself. The Agent must read and understand the document to see if they have authority over the principal’s particular affairs. 

What is a Limited Power of Attorney?

A limited POA is limited in scope or time. For example, it may only grant the ability to sell the principal’s property and for a particular length of time. Ultimately, the power of attorney will terminate either when the action is taken or the time limit expires. 

What is a Durable Power of Attorney?

A durable power of attorney allows the agent to act on the behalf of the principal, even if the principal is deemed incompetent/incapacitated. 

General POA Vs. Durable POA

The key differences between a general power of attorney and a durable power of attorney relates to incapacity. A regular power of attorney will terminate if the principal dies or becomes incapacitated, which means that the agent will no longer be legally able to handle the principal’s affairs. 

When it comes to a durable power of attorney, the effectiveness of the assigned power to the agent stays in effect even if the principal becomes incompetent. The powers in a “durable” power of attorney remain effective even if the principal becomes incompetent/incapacitated. 

A general power of attorney could be used if the principal was out of the country for a short while and needed somebody to manage their finances, whereas a durable power of attorney is needed if the principal can no longer make informed decisions about their own care. 

There are typically four situations that would terminate any power of attorney:

• If you revoke it

• If you become mentally incompetent (unless the power of attorney is durable)

• If there is an expiration date stated

• If you pass away
  

The Agent I Choose Doesn’t Matter

Choosing the wrong agent can be a huge mistake. If you choose an untrustworthy person to be your agent, they may abuse their powers and misuse your assets. 

Choosing The Right Agent

You should choose someone who is:

• Loyal and trustworthy

• Organized, as they’ll be running your finances and investments for you, along with running their own life

• Good with managing their own money 

Consider asking a family member first. If you don’t want to leave it in the hands of a family member or perhaps you don’t have any nearby, then consider a close friend. If nobody fits into these categories, you can always hire a professional fiduciary that will be able to fill the role for you. 

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