There are many misconceptions regarding powers of attorney. Simply stated, a power of attorney is a paper you sign in which you appoint another person to act as your agent to make financial or health-care decisions for you. It is not a substitute for a will and you do not have to appoint a licensed attorney to act as your agent.

In order to sign a power of attorney, you must be clear-minded. Someone else cannot sign one on your behalf if you become incompetent or unable to understand what you are signing.

If you sign a power of attorney, you are known as the "principal" and the person you appoint is known as your "agent" or "attorney in fact." As stated above, your agent does not have to be an attorney; it is usually a relative or close friend.

The scope of a power of attorney for financial affairs can be limited or broad. If you want your agent to have limited powers---for example, only the authority to sell your car---then you would sign a limited power of attorney. If you wanted him to perform additional functions, you could list them specifically while still restricting his power.

Many people want a broad power of attorney so their agent can manage all of their affairs from banking to selling real estate. This is known a General Power of Attorney and it gives the agent wide-ranging power: perhaps in some instances too much power.

The reason most people sign a power of attorney is to enable another person to manage their affairs. In order for a power of attorney to be valid if you become disabled, you must create what is known as a "durable" power of attorney. A Durable Power of Attorney states that it will be valid even if you become disabled. If it does not contain that language, your agent will not be able to use the power of attorney if you become disabled.

When you sign a power of attorney, you can make it effective now or make it effective only if you become disabled in the future. If your power of attorney becomes effective upon disability, your agent will not be able to to anything until and unless you become disabled. The power of attorney will usually require a doctor's certification of disability in order for your agent to act. If you make it effective now, your agent will have the ability to handle your affairs immediately. One of the benefits of a power of attorney that is effective immediately is that your agent does not have to produce a certification of disability from a doctor every time he needs to use the power of attorney.

Some people do not want to sign a power of attorney that is effective immediately because they do not really trust the person and want to retain control as long as possible. If they do not trust the person they are appointing, then they should not appoint that person, period. A person who cannot be trusted while you are competent certainly is not trustworthy if you become disabled and unaware of their actions.

If you sign a power of attorney, in most instances it must be notarized and recorded at the County Recorder's Office. If at a later date you change your mind, you must sign a revocation of the power of attorney and record that. You must also notify the agent of the revocation, otherwise he may continue to act on your behalf.

If you sign a power of attorney, it is a good idea to check with your bank and other financial institutions to make sure they will honor it. Some banks have their own forms they want you to fill out and will not honor a power of attorney that has been done elsewhere. Because a power of attorney does not have the same effect as a court order, a third party , such as a bank, does not have to honor it.

If you decide to do a power of attorney for financial management, you may also want to consider doing a power of attorney for health care. A power of attorney for health care allows you to appoint someone to make medical decisions on your behalf if you are unable to make your own decisions. Unlike a power of attorney for financial affairs, it can only be effective upon disability. Because the power of attorney for health care must contain specific language, it is usually separate from the power of attorney for financial affairs so you will need to sign two powers of attorney.

Many people automatically appoint a family member as their agent, but this may not always be the best choice.

When you appoint an agent under a power of attorney for financial management of health care, you need to give the appointment some thought. Many people automatically appoint family members, but they may not always be good choices. They may not be good financial managers or simply may not want the responsibility of making decisions on your behalf.

Once you have decided to appoint someone as your agent, you should also consider appointing an alternate agent in case your first agent is unable to serve for whatever reason. For example, if you appoint your spouse as your first choice and you are both in a car accident, your spouse may not be able to manage his own affairs let alone yours.

Powers of attorney are very valuable but very powerful tools. An unscrupulous agent can sell your house from under you or clean out your bank account. Before signing a power of attorney, think about what it is you are trying to accomplish and whether the person you are considering appointing exercises good judgment, is financially responsible and takes an interest in your affairs.

Despina Hatton is the directing attorney of the Senior Law Program at the Washoe County Senior Services Center.