Your Role & Responsibilities as an Agent in a Power of Attorney (POA)
A Helpful Guide on the Different Types of Powers of Attorney
A power of attorney (POA) can grant you certain authority and specific responsibilities. While the extent and limitations of POAs can vary based on many factors, stepping into the role of power of attorney can be unlike anything else. That’s because it puts you in the driver’s seat to make key decisions and oversee vital needs for someone else.
That doesn’t mean that POAs come with carte-blanche powers or that one power of attorney will mirror another.
Explaining how POAs work, this guide shares more fundamentals, detailing some common types of powers of attorney and the responsibilities you may have as an agent of one of these devices.
What Is a Power of Attorney (POA)?
A power of attorney is a legal instrument through which one individual (the principal) can name another person (the agent or attorney-in-fact) to act on their behalf:
- Under certain circumstances: Generally, powers of attorney are set up to take effect when the principal is not capable of making certain decisions or taking certain actions independently. For instance, many POAs are devised to activate in the event of an accident, certain diagnoses, or a severely incapacitating injury. As such, powers of attorney tend to come up in incapacity planning and estate planning.
- With certain restrictions: Powers of attorney define the extent and limits of the powers being granted. For example, while some POAs are designed to focus solely on finances and financial needs, others are centered on health, medical needs, and healthcare choices.
Like many other legal documents and devices, powers of attorney are fully customizable to the wishes of the individual creating the POA, offering the ability to grant wide-sweeping or very limited powers, based on the principal's preferences.
Types of Powers of Attorney
POAs can be adapted to fit various needs, with certain types of powers of attorney better suited for distinct situations and objectives. That said, the most common types of POAs tend to include:
- General POAs: Providing broader powers, general POAs usually grant the authority to manage finances, sign legal documents on another person’s behalf, and make decisions for them.
- Durable POAs: Taking effect with incapacity, durable powers of attorney give you the right to make decisions for another party when they can’t make choices for themselves. Durable POAs can be limited or broad, with specific terms tailored to the principal’s wishes.
- Springing POAs: Tied to a specific event, springing powers of attorney are only activated, “springing” into effect, when that event occurs. While these POAs can be used for incapacity planning, they can also come into play during an absence, like travel, work engagements abroad, or even incarceration.
- Medical POAs: Focused on healthcare decisions, medical powers of attorney give someone the authority to make healthcare choices for you when you can’t. Also called healthcare powers of attorney, medical POAs can define the medications, procedures, healthcare providers, and/or facilities someone does — and does not — want to be exposed to. These powers of attorney can also detail end-of-life care preferences, so there’s zero question about what the principal would want in this scenario.
- Limited POAs: With a very specific scope, limited powers of attorney only convey a narrow amount of authority to the agent in question. As such, these POAs can be handy for one-off occasions, like granting someone the power to sign a contract with a designated party on a specific date.
Keep in mind that powers of attorney can be different in different states because these devices are largely governed by state law.
Still, many states offer very similar POA options, and many will accept powers of attorney created in other states, as long as those other POAs meet the legal requirements of the origin state.
Power of Attorney Responsibilities
When you’re named an agent or attorney-in-fact in a POA, your responsibilities could include one or more of the following duties.
1. Manage Finances.
When powers of attorney have a financial component or focus, you could be responsible for:
- Paying bills and taxes
- Managing income and deposits
- Handling all banking needs
- Overseeing investments and/or business matters
- Holding the purse strings for the principal, making prudent choices with their money when they can’t.
2. Make Insurance Decisions.
Some POAs will authorize you to shop for new insurance coverage, pay premiums, and handle any claim needs. Depending on the principal and how the power of attorney is structured, that could mean you’re responsible for managing the ins and outs of a principal’s:
- Life insurance
- Health insurance
- Property insurance
- Other coverage(s).
3. Handle Tax Obligations.
General to limited POAs — and many of those in between — can also require you to manage all things taxes for the principal. That could mean:
- Filing tax returns for the principal and/or their business
- Paying quarterly or annual income tax bills
- Overseeing corporate tax obligations for any business holdings
- Taking other measures to ensure full compliance with any applicable tax laws.
4. Access Safe Deposit Boxes.
Attorneys-in-fact can be authorized to open and retrieve items from safe deposit boxes when needed. They could also be specifically prohibited from doing this, depending on how the power of attorney is structured and the circumstances at hand.
5. Handle Real Estate Transactions.
Some powers of attorney can confer the authority to buy, sell, or lease real estate. Whether that’s residential or commercial property, these POAs may also require an agent to seek appraisals, take certain steps during negotiations, or work with certain professionals, for instance.
6. Keep Detailed Records.
This responsibility typically follows financial powers of attorney, with the paper trail of the agent’s actions usually important to retain. That can mean keeping records like (and not exclusive to):
- Receipts, sales slips; and expenditure records
- Banking statements
- Tax records
- Inventory lists
- Asset performance reports.
What a POA Cannot Do
While a POA can grant substantial authority, that power isn’t unlimited. There are some “built-in” guardrails with POAs, creating some natural limits to what powers of attorney and agents can do. Here are some of the general limits associated with POAs and the role of attorney-in fact.
1. Create or Modify Estate Plans.
An attorney-in-fact may have far-reaching (or limited) authority to handle finances and/or medical decisions, but they cannot devise or change an estate plan on behalf of the principal. Only the principal can create and modify their estate plan, and they usually have to be “of sound mind” — and operating of their own free will (rather than coercion) — for those estate plans to be legal.
2. Vote for the Principal.
Voting rights don’t come with powers of attorney. If the principal can’t make it to the voting booth, you can’t go for them.
3. Self Deal.
As an agent, you may need to move money around and make various payments. None of that should involve the following unless it’s been specifically authorized in the power-of-attorney documents:
- Transfer the principal’s money into your accounts.
- Borrow money from the principal.
- Invest the principal’s assets into your ventures.
- Otherwise self deal out of the principal’s finances.
4. Control Out-of-Scope Items.
Anything not specifically stated in powers of attorney documents is NOT typically authorized. So, don’t assume more than is laid out in the POA documents, and check in with an expert if you’re unsure about anything.
Final Thoughts
When you’re named an attorney-in-fact in POA, someone’s handing you the reins to key matters in their life. However a power of attorney takes effect, the more you know about your role as an agent, the better. And the more help you have in your corner, the more sure-footed you can be as you get started — and as you move forward to fulfill your role.
This guide provides a general overview of powers of attorney and the roles and responsibilities associated with them. It is not exhaustive and does not include state-specific details, which can vary significantly. This information is intended to introduce you to the basic concepts and types of powers of attorney available, but it is not a substitute for professional legal advice. For questions or to address specific circumstances, please consult with a qualified legal professional.
This content is developed from sources believed to be providing accurate information. The information provided is not written or intended as tax or legal advice and may not be relied on for purposes of avoiding any Federal tax penalties. Individuals are encouraged to seek advice from their own tax or legal counsel. Individuals involved in the estate planning process should work with an estate planning team, including their own personal legal or tax counsel. Neither the information presented nor any opinion expressed constitutes a representation by us of a specific investment or the purchase or sale of any securities. Asset allocation and diversification do not ensure a profit or protect against loss in declining markets. This material was developed and produced by Advisor Websites to provide information on a topic that may be of interest. Copyright 2024 Advisor Websites.