A power of attorney ("POA") is a document that gives someone else authority to make decisions for you. The person making the power of attorney is called the principal. The person that he or she is giving authority to is called the attorney in fact.
Most POAs drafted by lawyers are "durable," meaning that they remain effective after the person creating the power of attorney is incapacitated. In North Carolina, a financial power of attorney must be recorded to be effective if the principal is incapacitated or if the power of attorney is used to transfer real estate.
There is a short-form POA in the General Statutes that can be printed on one or two pages. Unfortunately, the short-form POA does not cover all of the possible situations in which a POA may be needed. The broad provision in the statutory form may cover most issues that arise. But some powers must be specifically enumerated in order to be valid. Even when the power does not have to be specifically stated, it is often a good idea to have the specific power in the POA. Then there is no question.
Another problem with POAs is that some financial institutions review them with scrutiny. It is fairly common to hear that a banker needs to send the POA to his or her legal department to get approval. Some want the POA on their own form. Some get the power of attorney on their form and still want to talk to the principal to get authority to talk to the attorney in fact. Some question whether the principal had the mental capacity to execute the POA. This can be good protection from fraud. But it can also be very frustrating if you are depending on a POA to work for you.
For these and other reasons, many people choose to use both a POA and a revocable trust. If you have a fully funded revocable trust and are unable to transact business for any reason, including incapacity, the person you have selected as your successor trustee will be able to step in and manage the assets in your trust for as long as needed. An attorney in fact relies on agency law. However, the successor trustee is the legal owner. Therefore, it is less likely that a trustee will run into problems than an attorney in fact.
Even if you have a revocable trust to go along with your POA, the POA should be effective. My POAs tend to be long. I would rather include powers that will never be needed than need a power that is not there. I also encourage my clients to execute new POAs every few years, even if there are no changes. POAs may be the most important tool in your estate plan. You should make every effort to ensure that they are effective.