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What is a power of attorney and how does it work?

April 7, 2025
Last revised: April 7, 2025

A power of attorney gives someone you trust the authority to act on your behalf, managing tasks from bills to medical decisions. Discover how to choose the right type and ensure your wishes are followed.

Key takeaways

  1. A power of attorney allows someone you choose to make financial, medical or legal decisions on your behalf if you are unable.
  2. Someone with a financial power of attorney can handle matters, such as managing your bills and investments and overseeing property when needed.
  3. Without a power of attorney, your loved ones may have to go through court to manage your affairs.

Building a solid financial future and estate plan means planning for the unexpected. Creating a power of attorney is one way to protect your finances and ensure your wishes are followed. These legal documents allow someone you trust to make decisions on your behalf when you're unable to, including managing day-to-day finances and overseeing your medical care.

Powers of attorney play a key role in financial and estate planning. Understanding how a power of attorney works can help you be prepared and ensure your affairs are handled according to your intentions.

What is a power of attorney?

A power of attorney (POA) is a legal document that authorizes someone to act on your behalf. You, as the "principal," give someone you trust, called the "agent," the responsibility to make decisions about your health, finances and more.

You can make an agent's authority as broad or as limited as you want based on the authorities you grant. For example, they can manage your bank account, sign legal documents or oversee your medical care. The POA can take effect immediately or only be active under specific conditions.

Agents have a lot of responsibility, but their power is not unlimited. They have to abide by the POA document, and they're bound to act in your best interests. Plus, there are certain things an agent simply can't do: They can't change your will or estate plans, they can't use your assets and money as their own (unless explicitly outlined in the POA), and they can't continue to act as agent after you've died.

Types of powers of attorney

POAs can be designed by you and a legal professional to fit a variety of situations, granting someone the authority to assist you with all of your decision-making responsibilities or just a category of them. These are the main types of POAs:

  • General power of attorney. Gives broad authority to act in a wide range of matters such as financial, legal and business matters, unless the document specifies otherwise.
  • Financial power of attorney. Focuses on asset-management decisions such as paying bills, handling property, managing investments or filing taxes.
  • Medical or health care power of attorney. Also known as healthcare proxy, authorizes the agent to make medical decisions such as pursuing treatments, surgeries, life-sustaining measures or end-of-life care.

When you create a POA, you determine when and how long it takes effect. You may want the agent to have the responsibilities right away and beyond your incapacity, or you may want to outline the specific times when they can act for you. Here are some common variations:

  • Durable power of attorney. Takes effect right away and stays in effect even if the principal can't make decisions independently.
  • Nondurable power of attorney. Goes into effect immediately but terminates when the principal can no longer make independent decisions.
  • Springing power of attorney. Only takes effect if the principal becomes incapacitated or meets other listed conditions and lasts only as long as the conditions are met.
  • Limited power of attorney. Grants authority for the agent to do specific tasks for a limited time.

Choosing the right type of power of attorney for your situation helps make sure your agent can handle the responsibilities you need when you need them.

How to choose an agent under your power of attorney

Choosing your agent is important as they may have to manage your finances, health care or other legal matters for you. Many people choose a spouse, a sibling or another trusted individual to be their agent while others choose a younger family member—someone more likely to outlive them and who can take on responsibilities if their health declines.

Trust or age aren't the only deciding factors, though. Choose someone organized and capable of making sound financial and healthcare decisions, especially under pressure. You might want to consult with a financial advisor or estate planning attorney to discuss your options. You also may want to list a successor agent if the primary is unable or unwilling to fill the role when needed. This approach can help you prepare for different scenarios as life circumstances and health can change quickly.

What are the disadvantages of being an agent under a power of attorney?

Being named an agent may involve significant responsibilities and challenges. The agent may need to manage complex financial matters, make difficult health care decisions, and potentially resolve family disagreements. Before accepting, consider the potential time commitment, complexity and family dynamics involved. However, open communication and clear instructions in the POA document can help set clear expectations.

How to set up a power of attorney

Obtaining a power of attorney ensures someone you trust can manage your affairs if needed. While online forms exist, consider consulting with a lawyer to ensure your POA is valid and meets your state's requirements:

  • Determine the POA you need. Consider whether you need broad authority or specific, limited powers. Durable POAs are often used for long-term planning.
  • Choose an agent. Pick someone responsible, trustworthy and capable of handling important decisions.
  • Define the agent's authority. Clearly define which decisions an agent can make regarding your finances, health care and property. This helps limit overreach and confusion.
  • Draft and sign the document. Consult with an attorney or use a legal service to draft the POA. Sign the document according to your state's requirements, which may be in front of a third-party witness and or a notary public.
  • Review and update. Circumstances may change, and so should your POA. Regularly review for your current needs, especially if you've had milestone events like marriage or children or if you've had health issues. If there are material changes, you may want to consider drafting a new POA.

What to know about financial POAs: Their responsibilities and authority

A financial power of attorney allows your agent to oversee your financial affairs, covering tasks like paying bills and debts, managing accounts and investments, and protecting assets. You can limit the agent's authority to certain tasks or timeframes, or you can allow them to act in your place whether you're able to make your own decisions or not.

Here are some financial power of attorney FAQs:

What does a financial power of attorney give you authority over?

A financial POA can cover tasks such as overseeing bank accounts, handling real estate and other property, fielding bills and loan payments, paying taxes and managing investments. The agent also may be allowed to sign financial contracts.

Are there any limitations to a financial POA?

You can limit a financial power of attorney's authority by specifying certain tasks or excluding others. A carefully drafted POA will help guide your agent within the legal bounds of a POA, ensuring they don't use your assets for their own purposes and ensure they act in your best interests.

When does a power of attorney take effect?

A POA can take effect immediately once the document is signed or can become active only under certain conditions, such as if you become incapacitated. You can outline these terms in the document.

Can a power of attorney be revoked?

A POA can be revoked anytime as long as you are able to make decisions independently. To revoke a POA, you'll need to draft a revocation document and notify all relevant parties, which may include financial institutions.

What happens if there's no POA in place?

Without a POA, your loved ones may face legal challenges, like petitioning the court for guardianship or conservatorship to manage your financial affairs if you become incapacitated. This process can be lengthy and costly. A power of attorney can help avoid these complications by having a trusted person already appointed to act according to your wishes.

Planning for the future starts today

Establishing a power of attorney helps protect your finances and ensures your wishes are honored. Whether it's for managing daily tasks or overseeing long-term care, having this legal document in place can bring clarity and security. You don't have to navigate long-term financial planning alone. A local Thrivent financial advisor can help you create a personalized plan that aligns with your goals and protects your future.

Thrivent and its financial advisors and professionals do not provide legal, accounting or tax advice. Consult your attorney or tax professional.
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