What is a Power of Attorney and How Does it Work?

Learn what a power of attorney is and how it works. Find out how durable powers of attorney remain in effect even if you become incapacitated and how special powers limit an agent's authority.

What is a Power of Attorney and How Does it Work?

A power of attorney is a legal document that grants another person the authority to act on your behalf. It can be used by seniors or anyone who wants to appoint a trusted individual to make decisions for them when they are unable to do so. A power of attorney (POA) gives the agent the right to handle certain matters, such as finances or health care, in the principal's stead. If the POA is durable, it will remain in effect even if the principal becomes incapacitated due to illness or accident.

It is often necessary or convenient for someone else to act on your behalf. You can give someone the legal authority to do so with a power of attorney. The person who grants the POA is known as the principal, while the person who receives it is called the agent or proxy in fact. Making a power of attorney durable ensures that it remains valid even if the principal becomes mentally or physically unable to make decisions.

A court may be called upon to decide whether a third party must comply with a power of attorney, order an agent to account for their actions, interpret or modify the POA, or remove the agent. An emerging power of attorney is not automatically recognized, and institutions may refuse to work with the de facto lawyer. For example, if someone else is selling a car on your behalf, they must submit the power of attorney to the Department of Motor Vehicles before they can sign the title. The person who holds a POA also has a legal fiduciary duty to make decisions that are in your best interest.

A general permanent power of attorney authorizes an agent to act on a wide range of legal and business matters and remains in effect even if you become incapacitated. However, you should meet regularly with your attorney to review your POA and consider whether your choice of agent still meets your needs and whether any changes in state law affect your power of attorney. Similarly, an agent who signs documents related to real estate transactions must submit the POA to the title company. A general power of attorney agreement ends when the principal becomes incapacitated, revokes the POA, or dies.

With a medical power of attorney, you can designate someone to make health care decisions for you if you become unable to do so yourself. A problem may arise if an agent with a durable power of attorney believes that you now lack mental capacity to act independently or cancel the POA, but you disagree. Some powers of attorney expressly include termination dates in order to reduce the risk of former friends or spouses continuing to serve as agents. If you have property that is solely in your name, your spouse will need a power of attorney in order to take any legal or financial action related to it (such as selling it).

Generally, the law of the state in which you reside at the time of signing a POA will govern what powers and actions your agent has under that document. A special power of attorney limits an agent's authority to certain conditions.