What is the Difference Between a Durable, General and Contingent Power of Attorney

Most people have at least heard of a power of attorney, or POA, before. As the name implies, a POA is a document that gives another person the power to act as your attorney – even if they are not one – making legal and financial decisions in your name.

A very important thing to know about any power of attorney is that it will become ineffective in most cases, once its intended purpose has been fulfilled. This may be when you become incapacitated, or after your death, depending on what type of Power of Attorney you have created. That’s why it’s important to understand the differences between a durable, contingent and general power of attorney.

Differences Between General and Durable Power of Attorney

A power of attorney gives another person the authority to act on your behalf when you are unable to do so on your own. As an example, suppose you are out of town on business quite often. A POA could allow another person to handle your finances during those times you are gone. This power can be limited to a specific transaction or “special”, or can cover many different circumstances.

A general POA gives your agent the authority to conduct any type of business on your behalf, including filing your tax returns, handling your banking and other transactions, buying, selling or managing real estate or other property, entering contracts and settling claims.  You can grant your agent additional powers such as maintaining and operating business interests or making transfers to living trusts.

A POA can make a relatively broad statement regarding your financial and real estate transactions, however a general power of attorney ends when you become mentally incapable, due to sickness or injury, and are unable to handle your own affairs, while a durable power of attorney does not end under those circumstances. This means that if you  need want a trusted individual who can make important healthcare and/or financial decisions for you in the event you are facing a serious illness—or when something unexpected happens—you want a durable POA rather than a general POA.

Differences Between Durable vs. Contingent Power of Attorney

A durable POA is valid from the day it’s executed, or, more specifically, it can be used anytime.  For instance, if you wanted to ensure someone could manage your finances or assets while you were out of town, a durable POA would grant them this power. The alternative to a durable POA is a contingent POA, which only vests power under certain circumstances.  Perhaps the most common scenario for contingent POA documents are those used for medical decisions.

These documents grant certain powers to others in the event you are deemed incapacitated or unable to make important decisions.  However, if you later regain that capacity, the powers granted might cease at that time. In other words, a contingent POA kicks in when a specific event occurs, while a durable POA covers what is designated from the day it is executed.

A few aspects to consider about your power of attorney:

  • When you give power of attorney to another person, you become the principal.
  • The person you give the power of attorney to is known as an attorney-in-fact.
  • As the principal, you do not give up any rights to continue taking care of your own affairs just because you have a power of attorney.
  • Your attorney-in-fact is only legally allowed to use the power of attorney for your benefit.
  • You can revoke a power of attorney at any time, by simply giving written notice to the named attorney-in-fact. If the original power of attorney is recorded, then the revocation must also be recorded.
  • A durable power of attorney remains in effect until you revoke it or until your death.
  • Your attorney-in-fact is not responsible (financially) for your debts.

Choosing Someone You Trust

As you can see, creating a specific power of attorney involves many very important responsibilities that will affect your well-being, and the livelihood of your family. Therefore, it is essential that you choose someone who you trust to follow your wishes as closely as possible. It is also wise to go over these documents with your agent early and often to ensure that he or she fully understands your instructions and desires.