What Is a Power of Attorney?

A power of attorney is a legal document in which one person, called the principal, authorizes another person, called the agent or attorney-in-fact, to act on the principal’s behalf. The agent may be given authority to handle financial, legal, property, business, or other matters, depending on the terms of the document.

A power of attorney is an important estate planning tool because it allows a trusted person to assist with decision-making and financial management if the principal is unavailable, ill, disabled, or incapacitated.

Key Parties to a Power of Attorney

Principal

The principal is the person who creates the power of attorney and grants authority to the agent. The principal must have the legal capacity required to sign the document.

Agent

The agent is the person appointed to act for the principal. The agent has a fiduciary duty to act in the principal’s best interest, follow the principal’s instructions, and act only within the authority granted by the power of attorney. An agent does not become the owner of the principal’s property. The agent is merely authorized to act on the principal’s behalf.

What Can a Power of Attorney Authorize?

A power of attorney can be broad or limited. Depending on the document, an agent may be authorized to:

• Pay bills and manage bank accounts;
• Buy, sell, or manage real estate;
• Handle investments;
• File tax returns;
• Manage retirement benefits;
• Operate or assist with a business;
• Apply for public benefits;
• Handle insurance matters;
• Sign contracts or other legal documents;
• Make gifts, if expressly authorized;
• Create or modify certain estate planning arrangements, if expressly authorized;
• Conduct other financial or property-related transactions.

Certain powers may require specific language. For example, authority to make gifts, change beneficiary designations, or alter survivorship rights is often treated as a special power that should be clearly stated in the document.

Duties of an Agent

An agent under a power of attorney is a fiduciary. This means the agent must act with loyalty, care, and honesty. Common duties include:

• Acting in the principal’s best interest;
• Following the principal’s reasonable expectations and instructions;
• Acting only within the authority granted;
• Avoiding conflicts of interest;
• Keeping the principal’s property separate from the agent’s property;
• Maintaining accurate records;
• Preserving the principal’s estate plan where known and appropriate;
• Avoiding self-dealing unless expressly authorized.

An agent may be personally liable for misuse of authority, mismanagement of assets, or acting outside the scope of the power of attorney.

Choosing an Agent

The choice of agent is one of the most important parts of creating a power of attorney. The agent should be trustworthy, organized, financially responsible, and willing to act in the principal’s best interest.

Relevant considerations include:

• The agent’s integrity and judgment;
• Ability to manage financial and administrative matters;
• Availability and responsiveness;
• Familiarity with the principal’s wishes;
• Ability to communicate with family members and professionals;
• Willingness to keep records;
• Ability to avoid conflicts of interest.

It is also common to name one or more successor agents in case the first agent is unable or unwilling to serve.

Why a Power of Attorney Matters in Estate Planning

A power of attorney helps avoid disruption if the principal becomes unable to manage financial affairs. Without a valid power of attorney, family members may need court authority, such as a conservatorship, to manage the principal’s property or finances during incapacity.

A well-drafted power of attorney can provide continuity, reduce administrative burden, and allow a trusted agent to act efficiently when assistance is needed.