Understanding different powers of attorney

A power of attorney is a signed legal document that gives a trustee or person the legal authority to act and make decisions on your behalf when you do not have the capacity to make decisions.

For example, you may want someone to act on your behalf if you are hospitalized or jailed and need someone to handle such tasks as paying bills or managing a business. Longer-term issues, like dementia or Alzheimer’s, might also require that you allow a trustee to make decisions for you.

Types of powers of attorney

There are five types of power of attorney, as explained below:

1. Ordinary power of attorney

An ordinary power of attorney allows you to appoint an individual or persons to manage legal and financial decisions on your behalf while you still have the mental capacity to make them. You may be away on holiday or hospitalized, or you may not wish to make certain decisions. This power of attorney is invalididated if you become incapacitated.

2. Enduring power of attorney

An enduring power of attorney allows you to appoint someone to manage your legal and financial decisions even if you lose your ability to make such decisions. Most people set up enduring powers of attorney to cover themselves in the future.

3. Lasting power of attorney

A lasting power of attorney comes into effect when you lose your mental capacity to make such decisions. The person named does not act on your behalf until you no longer have the cognitive ability to do so.

4. Springing power of attorney

Springing power of attorney becomes effective after a specific intended event occurs, such as the principal becoming incapacitated. The person named can only act after the occurrence of the said event.

5. Special power of attorney

This power of attorney allows you to grant extraordinary power to an individual to act in a particular area. For example, you might give a real estate agent the ability to sell your home. Once the task is complete, the document becomes invalid.

Decisions made by the appointed power of attorney

Depending on the type of attorney, the appointed individual can sign legally binding documents, pay bills, operate bank accounts, buy and sell property and manage other investments. The ideal appointee should be someone you can trust to make competent decisions when you are not around.

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