Attorney-in-Fact vs. Power of Attorney Explained

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An essential part of estate planning is making legal decisions surrounding real estate, finances, and healthcare. Ideally, you would be present and prepared to perform these tasks yourself. 

However, there may be times when incapacity or long-term travel could hinder your ability to make these decisions. In these instances, a power of attorney and an attorney-in-fact could be beneficial to take care of your estate and finances.

This guide will define an attorney-in-fact vs. power of attorney and how they work.

What is an Attorney-in-fact?

When creating a document for power of attorney, the person named is the agent, also known as the attorney-in-fact. The attorney-in-fact makes decisions on behalf of the principal. 

An attorney-in-fact's range of power and responsibility depends on the specifications indicated by the power of attorney document. Sometimes, the court could assign an attorney-in-fact if a person becomes incapacitated.

An attorney-in-fact may get one of two kinds of powers of attorney. 

• General. The general POA allows the attorney-in-fact to sign documents, conduct business, and make decisions on behalf of the principal.
• Limited. The limited or special power of attorney is similar to a general POA but can only apply in specific situations.

While the terms sound the same, an attorney-in-fact is not necessarily an attorney-at-law, also known as a lawyer. An attorney-in-fact does not need special qualifications or licenses, although they can also be lawyers.

Attorneys-at-law could represent you in court or give legal advice. An attorney-in-fact is not required to do these things.

What is a Power of Attorney?

A power of attorney (POA) gives an agent legal authority to make decisions on a principal's behalf. If you grant someone a POA, their choices would be as legally binding as the ones you make yourself.

This legal document could be broad or limited, depending on the powers you choose to delegate. It is often useful when settling affairs concerning one's estate, finances, and medical care. 

Two main types of powers of attorney cover healthcare and financial affairs.

Healthcare power of attorney

A healthcare power of attorney (HCPOA) allows your agent to make decisions surrounding your medical condition, care, and treatment. This document often applies when you can no longer communicate your decisions due to incapacitation. 

You must be able to trust your agent or healthcare proxy. They might need to make life-or-death healthcare decisions. Assign a spouse, close friend, or family member for this type of POA.

Financial power of attorney

A financial POA grants the agent the authority to make decisions surrounding the principal's business and financial matters. These could include managing bank accounts and investments, filing tax returns, and signing checks.

There are three types of financial POAs, depending on the extent of decision-making power granted to the agent.

A general power of attorney can grant your agent broad powers to make any financial decision. The only limit is that their decisions must align with state laws. 

On the other hand, a limited power of attorney only authorizes the agent to make decisions on specific matters. A limited POA could also have a time limit.

The third type of financial POA is a durable power of attorney. Under this arrangement, the agent has the authority to manage financial matters until the document's revocation or the principal's death.

However, the agent under a durable POA cannot make healthcare directives or decisions surrounding the principal's medical matters. They can take care of medical bills but cannot decide on the treatment or care of the principal.

How to Assign Someone Power of Attorney

Before setting up a power of attorney, ensure you are familiar with your state's laws. Different states often have specific formats and guidelines you need to follow.

Next, choose your agent. Ideally, this is someone you trust to handle financial or healthcare matters in your best interest. They could be a business partner, a spouse, a close friend, or a family member.

Below are standard guidelines on how to assign someone power of attorney.

1. Write down the agreement. Use precise language to avoid confusion.
2. Use the proper format. Make sure to choose a state-approved power of attorney form.
3. Assign the parties. The principal grants the POA while the agent receives it.
4. Identify the powers that you, the principal, want to grant. You could be as general or as specific as you wish.
5. Specify the POA's durability. How long will the POA last? Will it terminate if you become incapacitated? 
6. Notarize the POA. Many states require you to sign the POA in the presence of a notary public, but not all. However, notarized signatures could help the agent assert their authority even when it isn't required.
7. Record and file it with the appropriate public office. Some states do not require this step, but it can help establish the existence and validity of the document.

Planning Ahead

Creating a power of attorney is an excellent way to plan, especially surrounding financial and medical matters. It helps you maintain control even if you cannot make legal decisions yourself.

However, it is critical to choose an attorney-in-fact that you trust. They have a fiduciary duty to act in your best interests. Think thoroughly about the powers you choose to delegate and whether your agent can faithfully carry out these tasks.