The document “power of attorney” designates legal authority for an individual to act on behalf of another individual. A power of attorney is created when the principal signs a document giving authority to the agent or attorney-in-fact to act on the principal’s behalf.  The power of attorney advises third parties that the attorney-in-fact has the principal’s consent to handle matters specified.

Special/Limited Powers of Attorney

A special or limited power of attorney typically gives an individual the authority to handle a specific matter. This form of power of attorney is often used in real estate transactions giving the attorney-in-fact the power to handle all matters regarding the transaction such as signing the contract, mortgage, and closing documents. Once the attorney-in-fact has handled the specific matter authorized in the power of attorney the authority terminates. The authority also will terminate if the principal becomes mentally incapacitated.

Durable Power of Attorney

The durable power of attorney typically gives the attorney-in-fact authority to handle a wide range of affairs. For example, it may give the agent authority to handle all of the principal’s financial affairs. The document must specify each and every power conferred upon the attorney-in-fact. This form of power of attorney is critical in estate planning because it gives the attorney-in-fact the authority to handle the affairs of the principal even if the principal becomes mentally or physically incompetent. Once the principal signs the durable power of attorney it becomes effective, the principal need not become incapacitated.