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Estate Planning Blog

Common Misconceptions of Powers of Attorney

January 10, 2020

There are many misconceptions about what the legal document called a power of attorney does and what it involves. 

It’s important for you and your loved ones to know what these misconceptions are so you can be prepared for the process of getting a power of attorney as well as how to use it. 

Misconception #1: If you’re legally incompetent you can sign a power of attorney.

Common Misconceptions of Powers of Attorney | Chubb Law Firm

You can’t sign any legal document or appoint a power of attorney if you are in any way legally incompetent or incapacitated.

This is probably one of the most common misconceptions with a power of attorney. Many people assume if their relative is deemed incompetent due to incapacitation, then they will still be able to sign a power of attorney - but this isn’t the case. 

Only those individuals who are mentally competent can appoint a power of attorney. There is a big difference between being able to physically sign a document and understanding what you are signing. If an incompetent individual signs a legal document, it will not be valid.

Misconception #2: It’s OK to use a power of attorney document found on the internet.

While it may be easy to find power of attorney documents online, it isn’t a good idea to use them. 

Common Misconceptions of Powers of Attorney | Chubb Law Firm

Every circumstance is unique, so a power of attorney should be created to appropriately suit the specifications of that circumstance. It should fit the decisions and the care needed to be made on behalf of the person in question.  

It’s recommended that people stay away from online-generated power of attorneys and rely on custom drafted versions for their unique circumstances. 

When you pay for a power of attorney document online, you could be paying for a document that:

  • Doesn’t cover all of the legal requirements of your state
  • Doesn’t represent the details that are appropriate to your situation
  • Isn’t up to date
  • Lacks important authorities
  • Is deceptively simple
  • Is easily abused 

If you need help with a power of attorney, call The Chubb Law Firm today at (916) 241-9661 to review your goals and discuss your options. Do not rely on the internet when it comes to something so important to your future.

Misconception #3: A power of attorney allows the agent to do what they want with your assets/estate.

Under a power of attorney, the agent, by law, has an obligation to make financial decisions that are in the best interest of their client. 

Common Misconceptions of Powers of Attorney | Chubb Law Firm

Your Agent only has the specific powers granted by the power of attorney. In short, your Agent can’t do whatever they want with your assets and the power of attorney does not give your assets to your Agent. Think of the Agent as a caretaker of your assets. Your Agent is stepping into your shoes and managing things for you, not them.

Many people are concerned that if they get a power of attorney, the agent will take advantage of their assets and mismanage their affairs. This is a valid concern, because a power of attorney can give the Agent a wide range of authorities. However, your agent is legally obligated to do what is in the best interests of the person who gives the power of attorney.

To avoid this concern, you should carefully choose and appoint somebody you trust. Choosing somebody with integrity to be your Agent is important, especially if the power of attorney will continue if you are incapacitated. 

Misconception #4: There is only one standard power of attorney.

The power of attorney document can, and should, vary depending on the needs of  the principal (i.e., the person giving the power of attorney). 

While each state has its own “statutory” power of attorney, this type of power of attorney is intended to be “one size fits all” and often is inappropriate for the individual’s needs. This is why a power of attorney should be drafted by an experienced and reputable attorney in order for it to suit the principal’s unique circumstances and needs. 

The most common types of power of attorney include:

  • General Power of Attorney
  • Limited Power of Attorney
  • Durable Power of Attorney

What is a General Power of Attorney?

A general power of attorney usually includes broad authority to take many different financial actions on behalf of the principal. These powers are likely to include the ability to buy, sell, or manage property, bank accounts, and other types of  assets. The actions and authorities will be spelled out in the document itself. The Agent must read and understand the document to see if they have authority over the principal’s particular affairs. 

What is a Limited Power of Attorney?

Common Misconceptions of Powers of Attorney | Chubb Law Firm

This is a power of attorney that is limited in scope or time. For example, it may only grant the ability to sell the principal’s property and for a particular length of time. The power of attorney will terminate either when the action is taken or the time limit expires. 

What is a Durable Power of Attorney?

A durable power of attorney allows the agent to act on the behalf of the principal, even if the principal is deemed incompetent/incapacitated. 

General Power of Attorney vs. Durable Power of Attorney

The key differences between a general power of attorney and a durable power of attorney are in regard to incapacity. A regular power of attorney will terminate if the principal dies or becomes incapacitated, which means that the agent will no longer be legally able to handle the principal’s affiars. 

When it comes to a durable power of attorney, the effectiveness of the assigned power to the agent stays in effect even if the principal becomes incompetent. The powers in a “durable” power of attorney remain effective even if the principal becomes incompetent/incapacitated. 

A general power of attorney could be used if the principal was out of the country for a short while and needed somebody to manage their finances, whereas a durable power of attorney is needed if the principal can no longer make informed decisions about their own care. 

There are typically four situations that would terminate any power of attorney:

  • If you revoke it
  • If you become mentally incompetent (unless the power of attorney is durable)
  • If there is an expiration date stated
  • If you pass away

Misconception #5: The Agent I Choose Doesn’t Matter

Choosing the wrong agent can be a huge mistake. If you choose an untrustworthy person to be your agent, then they may abuse their powers and rob you of your assets.

Common Misconceptions of Powers of Attorney | Chubb Law Firm

Choosing The Right Agent

You need to choose somebody who is:

  • Loyal and trustworthy
  • Organized, as they’ll be running your finances and investments for you, along with running their own life
  • Good with managing their own money 

Consider asking a family member first, maybe your children, nieces, nephews, or siblings. If you don’t want to leave it in the hands of a family member or perhaps you don’t have any nearby, then consider a close friend. If nobody fits into these categories you can always hire a professional fiduciary that will be able to fill the role for you. 

If you need help with a power of attorney, call The Chubb Law Firm today at (916) 241-9661 to review your goals and discuss your options.

Call The Chubb Law Firm today at (916) 241-9661 to review your goals and discuss your options.

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Thanks for holding my hand. So glad you made things easier for me. I really don't know how I would have understood any of this without your knowledge.
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