Many of us don’t like to think about what would happen if we were to experience a stroke, accident, cognitive decline due to Alzheimer’s, or another life event that leaves us unable to make our own decisions. Yet if this happened, we also wouldn’t want our loved ones scrambling to take care of us — or leave them powerless to do anything at all. That’s why it’s essential to learn about durable power of attorney when you’re considering end-of-life options.
What is a power of attorney?
A power of attorney is a legal document that authorizes a third party to make decisions on your behalf under certain circumstances. The third party is called the “agent,” while you’re known as the “principal.”
A power of attorney can be very broad. The limits to what powers you can grant to an agent are set out by state statute, but they're generally the same in every state. You can authorize an agent to access and make changes to your bank and investment accounts, to make contracts on your behalf, to purchase and sell property on your behalf, and, in the case of a healthcare power of attorney, to make healthcare decisions on your behalf. Your agent isn’t given free reign over your assets — they're your “fiduciary” and have legal and ethical obligations to make decisions in your best interests and not for their own benefit.
Powers of attorney are flexible documents and have a lot of uses. Let’s say you’re scheduled to close on the sale of your house but are unexpectedly called out of town. You can grant a power of attorney to your spouse, family member, or friend to sign the closing documents on your behalf. That kind of power of attorney — for a limited time and a limited purpose — is typically called a limited power of attorney. For end-of-life planning purposes, you’re probably much more interested in two other types of power of attorney: the healthcare power of attorney and the durable power of attorney.
What is a durable power of attorney?
A conventional power of attorney will expire if you become mentally incapacitated. For example, if you execute a conventional power of attorney authorizing your agent to oversee your property or investments while you’re traveling abroad, but then you experience a mental decline due to a stroke or Alzheimer’s, that power of attorney automatically expires.
In contrast, a durable power of attorney lasts beyond any mental incapacitation. As a result, they're most commonly used as part of end-of-life planning with the expectation that they will not be used until you're unable to make decisions for yourself.
It’s important to note that powers of attorney become effective as soon as they're signed. This means that if you execute a durable power of attorney today, you're granting an agent the power to access your accounts, make contracts, sell property, etc. in your name immediately. If that's an uncomfortable thought, you may be interested in a “springing” durable power of attorney which comes into effect only when you become mentally incapacitated.
Durable powers of attorney help eliminate confusion and stress for your family should something happen to you. Without it, your family will have to go to court, have you declared incompetent, and ask a judge for this power — and there’s a chance that the judge will appoint a third party, like a social worker, to be your power of attorney.
What happens to a power of attorney after death?
All powers of attorney expire at death, and the person named as agent will no longer be able to make decisions on behalf of the deceased. Even if an agent is named durable power of attorney for finances, they won’t have the ability to access bank accounts or business dealings. After the principal’s death, the power to make decisions about their estate and other matters passes to the executor named in the will or appointed by the court.
Are there any limitations on durable power of attorney?
You can designate durable power of attorney for many different matters. But what's a durable power of attorney not? There are only a few powers that you can’t delegate to someone else:
- The power to vote
- The power to make, revoke, or amend a will (although they can make gifts of your property)
- The power to contract a marriage (in most states)
Limited vs. general durable power of attorney
Overall, there are two types of durable power of attorney: general and limited. General durable power of attorney allows the agent to act in a broad range of ways on behalf of the principal. They might pay bills, file taxes, sell property and assets, apply for government assistance, and more.
A limited power of attorney applies only to specific matters, like finances or medical decisions. You can even create a power of attorney that’s more specific, for example allowing the agent only to manage everyday expenses, run your business, or control your financial portfolio.
Many people do this when designating powers of attorney to their children, assigning certain powers to each child. You can also name more than one agent as a durable power of attorney, and require them to either make decisions together or give them authority to act separately.
Types of durable power of attorney
You have broad abilities to designate various powers to various agents, so you’ll have to ask yourself: What's a durable power of attorney to you and your loved ones? Here are the two most common types:
- Durable power of attorney for finances: This person can handle different types of financial transactions, like managing investment accounts and bank accounts, buying and selling property, signing and depositing checks, and making business decisions.
- Durable power of attorney for healthcare: A healthcare power of attorney is a particular type that allows your agent to make medical decisions on your behalf. This power isn’t included in a general durable power of attorney — that agent’s authority is only to pay your medical bills. Healthcare powers of attorney are authorized by state statutes, and states call these instruments by a variety of different names including healthcare directives, advance directives, and healthcare proxies. Some states combine these documents with a “living will,” in which you leave instructions regarding life-sustaining measures you want or wish to decline in advance. You’ll want to make sure that your document fully complies with your state’s laws.
Obtaining and revoking durable power of attorney
It’s important to consult with an attorney about any estate planning needs, including designating durable power of attorney. Requirements differ by state, and while you can find durable power of attorney forms online, it’s always good to talk to an expert. They can help you determine whether you need a durable power of attorney for healthcare, finances, or other areas and who to designate.
A durable power of attorney puts great responsibility and authority into the hands of the agent. You must designate someone who’s trustworthy, but also has the knowledge and skills to make decisions in that area. While by law they’re required to act in your best interest, there’s potential for self-dealing or enriching themselves through power of attorney.
As the principal, it’s easy to revoke power of attorney as long as you’re still mentally competent. See your attorney and put it in writing, then notify the affected parties. You should also notify your bank or other institutions your agent has interacted with so that they know that person is no longer authorized on your behalf.
If you’re thinking about end-of-life planning, you’ve likely considered where and how you want to be buried and what you want your memorial service to be. But end-of-life planning also means considering what happens before death and answering questions like “What's a durable power of attorney?” so that you can be prepared for all possibilities.