What is a power of attorney?

The roles

• Principal — the person granting authority. They must have mental capacity to sign.
• Agent (or attorney-in-fact) — the person given authority. The agent does not need to be a lawyer; it is usually a spouse, adult child, relative or trusted friend.
• Successor agent — a backup who can act if the first agent cannot.

Types of power of attorney

• General — broad authority over financial and legal matters.
• Limited or special — authority for a specific task or period, such as selling a particular house or managing affairs while the principal is abroad.
• Durable — remains in effect if the principal becomes incapacitated. This is the key document for estate and incapacity planning.
• Non-durable — ends automatically if the principal becomes incapacitated; often used for single transactions.
• Springing — takes effect only upon a specified event, usually the principal's incapacity as certified by doctors.
• Health care power of attorney (health care proxy) — authority to make medical decisions when the principal cannot. It is usually a separate document.

What an agent can do

Depending on the document, a financial agent may pay bills, manage bank and investment accounts, file tax returns, deal with Social Security and insurers, buy or sell property, run a business, and handle government benefits. Under the Uniform Power of Attorney Act, adopted in some form by roughly 30 states, certain sensitive powers — making gifts, changing beneficiary designations, creating or changing trusts — must be granted expressly, because they can be misused to shift the principal's wealth.

What an agent cannot do

• Act after the principal's death — authority ends at death, and the executor takes over.
• Make or change the principal's will.
• Vote in an election on the principal's behalf, or take an oath or sign an affidavit about facts only the principal knows.
• Act against the principal's interests or use the principal's money for themselves, unless expressly authorized.

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The agent's duties

An agent is a fiduciary. They must act in good faith, within the authority granted, in the principal's best interest and according to the principal's known wishes; keep the principal's money separate from their own; keep records; and avoid conflicts of interest. An agent who misuses a power of attorney can be sued, removed by a court and criminally prosecuted for financial exploitation.

Signing requirements

Requirements vary by state. Most require the principal's signature to be notarized; some also require witnesses, and some — including New York and California — use statutory forms or specific language. Banks and title companies often insist on a properly notarized document, and for real estate the power of attorney may need to be recorded. Several states now allow remote online notarization.

Revoking a power of attorney

A competent principal can revoke a power of attorney at any time, preferably in writing, with notice to the agent and to any bank or institution that has relied on it. A new power of attorney may revoke earlier ones automatically, depending on its terms and state law. Divorce revokes a spouse's authority as agent in many states.

Why it matters

Without a durable power of attorney, a family may need to ask a court to appoint a guardian or conservator to handle the finances of someone who can no longer do so — a public, slower and more expensive process that also requires ongoing court reports. A spouse does not automatically have authority over accounts or property in the other spouse's name alone.

Practical tips

1. Choose an agent who is trustworthy, organized and willing to serve, and name a backup.
2. Decide whether gifting powers are appropriate — they are useful for Medicaid planning but create risk.
3. Give copies to your agent and your bank; some banks ask customers to complete their own form as well.
4. Review the document every few years and after major life changes.

An estate planning or elder law attorney can prepare a power of attorney that meets your state's requirements, often as part of a package with a will and health care directive.