Estate Planning/Probate

What is the Purpose of a Power of Attorney?

Nov 18, 2020

A Power of Attorney, sometimes called a POA, is a document that allows another person to take action on your behalf.  POAs are typically used for estate planning purposes but can also be used for other circumstances.

There are generally two types of POAs used for estate planning, a medical POA and a financial POA.  Sometimes POAs become effective immediately and grant a wide range of powers.  Other POAs only go into effect after the person granting the POA is declared incompetent by one or more treating doctors or the Court.  Still other POAs are granted for very limited circumstances, for instance to allow another person to sign real estate documents for a person that cannot be present at a closing.

A medical POA allows another person to make medical decisions for you when you can no longer do so.  This would include the decision to enter a nursing home as well as life or death decisions.  It is possible to leave all of these decisions to the person that you name as your POA.  It’s best to share your wishes with your POA about potential medical circumstances.  Most POA’s want to act in the way they believe you would want.

A financial POA allows another person to conduct financial transactions.  The wording in the POA document determines the authority that is granted.  Often, a POA grants someone the right to handle banking, buy and sell real estate and other property such as stocks and bonds, apply for benefits, give gifts to others, etc.  Some POAs literally could allow another person to transfer ALL of your property into their name.  The law creates a general duty for the person named as the POA to act responsibly, but if the document does not limit the powers granted to the POA, there may be no legal remedy when a POA acts beyond what the Grantor intended.

Sometimes it is helpful to grant a person a wide array of powers in a POA, for example in Medicaid planning.  In certain circumstances, if a person is headed into a nursing home for their final days, their POA may have the right to transfer the property into their name in order to avoid Medicaid from taking all of the property.  This is a very risky maneuver that could result in denial of Medicaid coverage if not managed properly.  If this is your goal, please consult with an attorney before doing so.

Second marriages often create a significant problem for estate planning.  Second spouses could use a POA to transfer all of their spouse’s premarital assets into their name, or gift the money to themselves or their children, leaving the heirs from the first marriage with nothing.  We also sometimes see the “caretaker” children doing the same thing, cheating their siblings out of their inheritance.  This sort of behavior may be difficult to prove, but not impossible.

While POAs are an effective and necessary tool to help people when they are unable to manage circumstances on their own, it takes thoughtful consideration in determining exactly what powers to grant.  Consult with an estate planning professional, ask questions, and understand before you sign.