What is a power of attorney?
A power of attorney is a legal document that allows another person to act on your behalf while you are alive. The person you choose is called your attorney-in-fact. Despite the title, the individual you appoint does not have to be an attorney. They are simply the person you trust to handle your affairs when you can't or would rather not.
These powers can include the ability to pay your bills, manage your bank accounts and investments, buy or sell property, and deal with insurance.
Types of Powers of Attorney
There are several different types of powers of attorney, and many documents combine features of more than one:
Common-law: a general power of attorney that isn't drafted on a form set by statute.
Springing: takes effect only when a specific event happens, usually your incapacity.
Durable: stays in effect even after you become incapacitated.
Statutory: follows a form written into state law.
The one we use most often is the durable statutory short form power of attorney.
Why we use the durable statutory short form
The statutory short form is the version Minnesota law sets out, so banks and other institutions in Minnesota must recognize it. That makes it far less likely your attorney-in-fact will be turned away when they need to act for you.
It is also a safer form because it is governed by statute. Misusing it carries serious consequences, which gives your attorney-in-fact a strong reason to act in your best interest.
This form can be made durable. A durable power of attorney continues after you become incapacitated. For many people, that is the whole reason for having one: it lets someone you trust step in and manage your affairs at the moment you can no longer do it yourself.
What if I don’t have someone I trust to act as my attorney-in-fact?
An attorney-in-fact has very broad power, so we only recommend appointing someone you trust. There are legal consequences if an attorney-in-fact doesn't act in your best interest, but it's better never to need them. If there's no one in your life you'd want in this role, you can hire a professional fiduciary to act on your behalf.
When is a Power of Attorney Useful?
Say you’re getting to an age where you don’t want to handle your bills anymore, and you’d rather have one of your children manage your assets for you. That’s perfectly fine, and we see it all the time.
When this happens, it’s usually better to name your child as your attorney-in-fact than to give them your money or add them as a joint owner on your account. Adding them as a joint owner may seem like the simpler solution, but it often isn’t. A joint owner is exactly that: a co-owner of the account. Here are some unforeseen consequences we’ve seen:
You wanted the account to go to several people when you pass away, but it now goes directly to that child, who has no obligation to share it.
Your child is willing to split the account with the people you intended, but doing so counts as a gift from them and may require a gift tax return.
Your child has creditors, who may be able to reach the account.
Your child has a child applying for financial aid, and the account may count against them.
With a power of attorney, your child can manage your accounts and pay your bills, but the money stays yours and passes according to your plan.
A power of attorney is one of the simplest and most important documents in an estate plan. It lets someone you trust step in when you need help, without giving up ownership of your assets or upsetting the plans you’ve made for them.
This article is for general informational purposes only and is not legal advice. Reading it does not create an attorney-client relationship. Laws change, and every situation is different, so please consult an attorney about your specific circumstances before acting. This article addresses Minnesota law; the rules in other states may differ.