You cannot create or change a will as an agent or attorney-in-fact under a power of attorney. That said, a brief review of the power of attorney is helpful to understand what you can and cannot do.
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Table of Contents
- What Is a Power of Attorney?
- The Purpose of a Power of Attorney
- What Powers Can Be Authorized Under a Power of Attorney?
- What Powers Are Not Authorized Under a Power of Attorney?
- Can a Power of Attorney Impact a Will?
- Is an Attorney-in-Fact or Agent Required to Act?
- Should I Appoint Backup or Multiple Attorneys-in-Fact or Agents?
- How Do I Prepare a Power of Attorney?
What Is a Power of Attorney?
A power of attorney, sometimes referred to as a financial power of attorney, is a legal document used as an estate planning tool during your lifetime created to assist in the management of your financial affairs. (To learn more about a health care power of attorney, medical power of attorney, or a health care directive for health care, see more estate planning tools.)
You, as the person creating the power of attorney, are generally referred to as the “principal.” A principal may grant certain authority to another person, usually referred to as an attorney-in-fact or agent, to act for the benefit of the principal on certain financial matters specifically outlined in the power of attorney document.
The power of attorney may take effect and terminate at your direction. It is common for the power of attorney to take effect immediately or because of a certain event, such as incapacity of the principal. A durable power of attorney is often created, which takes effect immediately and continues even if the principal becomes incapacitated.
A power of attorney must be properly executed (finalized) and notarized to be effective. The principal may revoke the power of attorney at any time while still competent, and it terminates automatically upon the death of the principal.
The Purpose of a Power of Attorney
Sometimes a power of attorney is for convenience, but often it is used as an estate planning device to use during your lifetime. It can be especially important if you become incompetent. If you become incompetent without a power of attorney in place, a family member must seek a court order appointment as a conservator or guardian to manage your financial affairs and make financial decisions for you. This is a public probate or family court process that places evidence of your incompetency in the public domain, is time consuming and costly.
What Powers Can Be Authorized Under a Power of Attorney?
You can decide the scope of authority given under a power of attorney to be a single action or as many actions as allowed under the law. For instance, a power of attorney may just grant temporary authority to sign real estate documents for a closing, which is commonly done among married couples when one spouse cannot attend a closing. The authority can also be broad and sweeping, and can include authority to:
- Pay bills and expenses
- Engage in real estate transactions
- Pay taxes
- Manage investments and retirement accounts
- Transact business with financial institutions and insurance companies
- Operate your business
- Make gifts to third parties
The attorney-in-fact or agent must act in the best interest of you, keep accurate records, and avoid conflicts of interest.
What Powers Are Not Authorized Under a Power of Attorney?
An attorney-in-fact or agent cannot create or amend a will, however, some jurisdictions provide that they can create or amend trusts, and transfer assets into trusts, if specifically allowed in the power of attorney document.
The law is not as clear as to whether an attorney-in-fact can change a beneficiary under a will, and it is generally considered not a good idea to do so.
Can a Power of Attorney Impact a Will?
Even without the power to amend a will, the attorney-in-fact or agent can take steps that could greatly affect the impact of a will. For instance, in some states, an attorney-in-fact can implement pay-on-death beneficiaries on bank accounts, real estate, and motor vehicles, which would result in those assets passing to the beneficiaries outside of the will. The attorney-in-fact can change title to assets, sell assets, and make gifts for tax purposes.
To this extent, you have complete control over the authority given an attorney-in-fact before any incapacity occurs. Note again though, all actions taken by the attorney-in-fact or agent must be specifically authorized by you in the power of attorney document, and must be in your best interest.
Is an Attorney-in-Fact or Agent Required to Act?
No, the attorney-in-fact is authorized, but not required to act under the power of attorney.
Should I Appoint Backup or Multiple Attorneys-in-Fact or Agents?
It is a good idea to consider appointing a backup attorney-in-fact or agent. This way, if the main attorney-in-fact or agent is unable or otherwise declines to act, then you have a backup attorney-in-fact or agent to take over. This is especially important if you become incapacitated and are not able to nominate a backup attorney-in-fact or agent. If more than one attorney-in-fact is appointed and authorized to act at the same time, it is important to decide and indicate whether they must act together or if they can act independently.
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How Do I Prepare a Power of Attorney?
If you are interested in preparing a power of attorney and other estate planning documents, such as a last will and testament, check out do-it-yourself estate planning documents.
