In this guide
Mistake 1: Not Choosing the Right Agent
Your agent (also called an attorney-in-fact) will have significant control over your finances or healthcare decisions. Choosing the wrong person can be disastrous. Many people pick a spouse or adult child out of obligation, but that person may lack financial savvy, be easily influenced, or live far away.
Consider someone who is organized, trustworthy, and capable of handling complex matters. It's often wise to choose a backup agent as well, in case your first choice is unable or unwilling to serve. Discuss your expectations with them before signing.
Remember, your agent does not have to be a family member. A trusted friend or a professional (like an attorney or accountant) can be a better choice if family dynamics are complicated.
- Assess the person's financial or medical competence, not just your relationship.
- Ensure they are willing to serve and understand the responsibilities.
- Name a successor agent to avoid a gap if the primary agent can't act.
- Avoid choosing someone with a history of financial irresponsibility or substance abuse.
- Consider a co-agent arrangement if you want checks and balances, but beware of deadlock.
Mistake 2: Creating a POA Without Understanding State Laws
Power of attorney laws are state-specific. A POA that is valid in one state may not be recognized in another, especially if you move or own property in multiple states. Each state has its own requirements for signing, witnessing, and notarizing the document.
Some states have adopted the Uniform Power of Attorney Act, but others have not. This means the forms and rules vary significantly. Using a generic form from the internet can lead to a POA that is rejected by banks, hospitals, or courts.
To ensure your POA is valid, consult an attorney who is licensed in your state. If you own property in another state, you may need a separate POA for that state, or at least ensure your POA meets its requirements.
- Check your state's requirements for signing, witnesses, and notarization.
- Use a state-specific form or have an attorney draft one.
- If you move, review and possibly re-execute your POA to comply with your new state's laws.
- If you own real estate out of state, record a copy of your POA in the county where the property is located to ensure it's honored.
- Be aware that some states have a 'springing' power that only becomes effective upon incapacity, while others are immediately effective.
Mistake 3: Not Specifying Powers Clearly
A POA can be as broad or as limited as you wish. Many people sign a general POA that gives the agent broad authority over all finances, but this can be dangerous. Conversely, a POA that is too vague can be ineffective because third parties may not accept it.
You should explicitly list the powers you want to grant, such as managing bank accounts, selling real estate, filing taxes, or making healthcare decisions. If you want to restrict certain actions (like making gifts or changing beneficiaries), state those limitations clearly.
Also, decide whether you want a durable POA (which remains in effect if you become incapacitated) or a non-durable one (which ends upon incapacity). Most people need a durable POA for long-term planning, but it's crucial to specify this in the document.
- List specific powers: real estate transactions, banking, investments, taxes, government benefits, etc.
- Consider adding a 'gifting' power if you want your agent to make gifts for estate planning or Medicaid purposes.
- Explicitly state whether you want a durable POA (survives incapacity) or a springing POA (effective only upon incapacity).
- Include provisions for digital assets and online accounts, which are often overlooked.
- Avoid using broad phrases like 'all powers' without explaining what they mean.
Mistake 4: Failing to Update Your POA
Life changes—marriage, divorce, the birth of a child, moving to a new state, or a change in your relationship with your chosen agent—can affect your POA. An outdated POA may not reflect your current wishes or may name an agent who is no longer appropriate.
For example, if you divorce and your ex-spouse is your agent, most states automatically revoke the POA upon divorce, but not all. If you haven't updated your POA, your ex-spouse might still have authority, causing legal complications.
Review your POA every few years or after any major life event. It's also important to ensure your agent is still willing and able to serve. If not, execute a new POA and revoke the old one in writing.
- Review your POA after major life events: marriage, divorce, death of a loved one, birth of a child, or a significant change in assets.
- If you move to a new state, update your POA to comply with local laws.
- If you change your mind about your agent, execute a new POA and revoke the old one in writing.
- If your agent becomes incapacitated or moves away, update your POA to name a successor.
- Consider reviewing your POA during annual estate planning checkups.
Mistake 5: Not Properly Executing the POA
A POA is only valid if it is executed correctly. This means signing it in the presence of the required witnesses and/or notary, depending on your state's laws. If you fail to follow these formalities, the POA may be invalid or rejected by financial institutions.
Some states require the POA to be notarized to be recorded in land records or to be accepted by certain institutions. Others require two adult witnesses. Some states have specific forms that must be used. Ignoring these details can cause delays or outright refusal to honor the document.
Also, make sure you sign the POA while you have the mental capacity to understand what you are signing. If a POA is signed when you are already incapacitated, it is void. Plan ahead and execute your POA while you are healthy. You can power of attorney with a state-specific template here.
- Check if your state requires notarization, witnesses, or both.
- Use the correct form for your state, or have an attorney prepare it.
- Ensure you have the mental capacity to sign the document.
- Keep the original signed document in a safe place, and give copies to your agent and family members.
- If you need to record the POA (e.g., for real estate), ensure it is notarized and recorded with the county.
Mistake 6: Not Communicating Your Wishes
Even with a valid POA, if your agent and family members don't know about it or understand your wishes, conflicts can arise. Your agent may make decisions that go against what you would have wanted, or family members may challenge the agent's authority.
Talk to your agent and your loved ones about your POA. Explain what powers you've granted and your general preferences for medical care, finances, and other matters. This can prevent misunderstandings and ensure everyone is on the same page.
Also, provide copies of the POA to your bank, doctor, and other relevant institutions. Many institutions have their own forms and procedures for accepting a POA. If they don't have a copy on file, they may refuse to honor it when you need it.
- Have a conversation with your agent about their role and your expectations.
- Inform family members about your POA and your agent's authority to reduce conflict.
- Provide copies to your bank, financial advisor, healthcare providers, and any other relevant parties.
- Ask institutions if they require their own POA form or specific language.
- Consider creating a separate document outlining your wishes (e.g., a living will) to guide your agent.