A power of attorney or letter of attorney can be a pretty powerful document in estate planning. Yet, people don’t take it seriously. They often assign someone as their power of attorney without giving much thought and time.
A letter of attorney is as vital as wills and trusts in estate planning. So, you need to have a clear conception about it to get it right.
What is a Power of Attorney?
A power of attorney (POA) is a written legal document that allows someone to act or represent on another’s behalf to make decisions in all matters or some specific issues. The person who creates the POA is called the principal or grantor, and the person who is assigned to act on behalf of the principle is known as the attorney-in-fact.
How Power of Attorney Works?
People establish POA when they can be no longer capable of handling their affairs themselves. They can also create POA if they can’t present to handle specific matters. For instance, to close a real estate deal in a distant area.
There is no prerequisite for creating a POA. Given the circumstances, anyone can establish it. To set up a POA, one must have to be in full mental capacity.
A power of attorney will define what the agent can do on your behalf on what condition. A POA can be written or oral, depending on the jurisdiction. In both cases, you may need a witness.
The POA needs to be signed and dated by the grantor to become a legally enforceable document. In some cases, it may need to be notarized too.
The POA can be canceled or revoked if the original documents get destroyed.
Types of Power of Attorney
Depending on the action or limitation, there are several types of a POA-
A general POA gives the authority-in-fact all the powers and rights of the grantor. The general POA can sign documents, pay bills, perform financial transactions, and make important financial and other decisions on your behalf. A general POA ends with the grantor’s demise.
A limited POA can act on some limited purposes on principals’ behalf. The limited POA is used on a specific purpose at a particular time. For instance, if you are out of town, but you need to sign some papers on a specific deed, then you can establish a limited POA.
A power of attorney generally becomes ineffective when the grantor dies or becomes mentally ineffective. In the case of a durable POA, the attorney-in-fact will be in effect even if the grantor becomes mentally incapacitated.
A springing POA is like a durable POA. The difference between springing POA and durable POA is springing POA will be into effect only after the grantor becomes mentally unstable or unable to act.
When You Need POA
The POA should be established –
- To make a financial decision.
- To settle claims.
- To buy life insurance.
- To operate business affairs.
- To protect estate property.
- To make health or medical decisions.
What Happens If You Lack a POA
There are several disadvantages of not having a POA-
- You will have no control over your assets if you lose your mental stability.
- The assets could be handled by someone you don’t like.
- Once you are unable to make decisions for yourself, your family can’t assign a power of attorney on your behalf.
- The court will appoint a deputy if you don’t establish a power of attorney, and the power of deputy is limited compared to a power of attorney.
- The process of handling your affair can be costly or time-consuming if you don’t establish a POA.
Who Should You Appoint
If you are in a long term relationship, then it is wise to appoint your partner or spouse. The attorney-in-fact must have to be trustworthy, mentally fit, and enough knowledge about your wealth and affairs.
It is wise to appoint two or more trusted friends or family persons. Then, your affairs will be handled smoothly if any of them dies or become mentally unstable. It is also helpful to keep balance in decision making.
The Bottom Line
The POA is an integral part of estate planning and estate administration. You are going to assign someone to handle your business on your behalf. It is essential to give a great deal of thought before establishing a POA. It can be as crucial as trusts and wills.
You need to have a proper discussion with the person you are going to assign as attorney-in-fact. You need to know if he/she is capable enough to handle your affairs. He/she has to have proficient knowledge about your financial matters if he/she is going to be your attorney-in-fact. And above all, he/she needs to be trustworthy.
If you need any information or help regarding power of attorney Alberta, don’t hesitate to give us a call.