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What is Power of Attorney?
Chances are, most people have heard of a “Power of Attorney” and may even have a vague understanding of what it does. Too often, however, we find that there are certain myths upheld as truth in regards to what a power of attorney does and doesn’t do.
So, what exactly is it – and why is it useful?
A power of attorney is a document that you sign naming someone else to handle your business and personal affairs. A common misconception is that this document only comes into play if you’re sick or incapacitated in some way and unable to handle your own affairs. It’s true that in the past, those types of power of attorneys could be drafted, but we had a change in the Florida law and after 2011, a power of attorney is effective the moment that it’s signed. It can then continue throughout any incapacity. It’s a very powerful document that you will want to keep secure so that it can’t be misused.
Another common misconception is that you can use a power of attorney to handle the affairs of the principal (that is the person who had named you as their power of attorney) after the principal has died. The truth is, the power of attorney becomes void when the person who gave it to you passes away. It becomes completely ineffective on death and can not be used at all.
Generally there are two types of power of attorney. We have the “general power of attorney”, which is broad and gives sweeping rights to whomever you name to handle your business affairs. This type of power attorney would be drafted to allow someone to do everything on your behalf – talk to your banks, talk to medicare or medicaid, handle insurance companies, etc – so that they can act as you in every single way you require. You can also do what is called the “limited power of attorney”, which is just what it sounds like. It’s a limited version of this document that allows you to name the very specific rights that the person can exercise on your behalf. For example: if you wanted someone to handle your banking for you but did not want to allow them to speak with the IRS, we can make that designation.
The limited power of attorney is used a lot in real estate transactions so that if it’s inconvenient for someone to attend their real estate closing, you can name a friend, family member or even your realtor as a designated signer on your behalf. We can draft the power of attorney to be that specific. If there is a lender involved in a transaction, they frequently require a specific power of attorney that addresses this power itself, even if a general power of attorney already exists.
It’s also important to understand that when you’re signing this power of attorney and giving these broad rights to someone, that person can do anything for you. That includes, unfortunately, stealing from you! If you put your trust in someone unwisely, that person can to to the bank, clean out your bank accounts, and the bank would have no liability to you whatsoever because there was a power of attorney in place. Your only recourse in this situation is to sue the “bad guy”, which can be a lengthy and expensive process. A power of attorney is a great document but it is a document that must be drafted and used wisely and kept safe.
Many of you may have, or may have seen, what is called a “springing power of attorney” – this is a power of attorney that only goes into effect if you are incapacitated or unable to handle your own affairs. It’s very important to know that the change of law in 2011 has rendered those types of power of attorney invalid. If you have one, now is a good time to pull it out, take a look at it, and see what it says. If your power of attorney is, in fact, this outdated version then you will have to obtain a new one.