Differences Between a Power of Attorney & a Letter of Authorization

By Larissa Bodniowycz, J.D.

Differences Between a Power of Attorney & a Letter of Authorization

By Larissa Bodniowycz, J.D.

A power of attorney (POA) and a letter of authorization are both written documents that grant one person the authority to act on behalf of another. However, they are different types of documents that serve different purposes.

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Power of Attorney

A power of attorney is a legally binding document that grants one person, the agent, the ability to act on behalf of the person who created it, the principal. State law sets the requirements for creating a valid POA.

A POA is useful in a variety of situations and is most often used as a tool for planning for incapacity. A durable power of attorney, the most common form created, ensures that the agent is legally authorized to manage the principal's affairs if she becomes temporarily or permanently incapacitated. For example, if a principal is in a car accident and unconscious for a period of time, the agent can access her bank account and pay her important bills, including rent, utilities, and insurance.

A principal can use a special form of POA, called a health care power of attorney, to appoint an agent to make medical decisions on their behalf if they become incapacitated. Health care powers of attorney have different requirements, though, and the appointed agent can only make health-related decisions.

Alternatively, the principal can draft the form to allow the agent to act only for a limited purpose or period of time. For example, a POA can grant an agent the authority to execute documents for a closing on a home purchase the principal has made if the principal cannot be there in person.

Letter of Authorization

"Letter of authorization" is a very broad term that refers to any letter in which one person or business grants another person or business the authority to act on their behalf. Similar to a POA, the person or entity that creates the letter of authorization is called the principal and the person or entity holding the power to act for the principal is called the agent.

A letter of authorization is useful in different situations. In both, the main purpose is usually to create a written record of authority that has been granted to an agent for a limited purpose.

Letters of authorization are used in personal and business settings. For example, in business, it serves as documentation that a person, such as the company's secretary or attorney, is authorized to act on behalf of the business. In a personal setting, many race directors require a letter of authorization if someone other than the person running the race will pick up their race packet.

Differences Between POA and Letter of Authorization

A power of attorney is usually a multiple-page, formal document that must comply with state laws. A letter of authorization, in contrast, is typically less than a page long and relatively informal, and while it may be honored by the person receiving it, it's not state law to accept it.

The trade-off for the lack of formality of a letter of authorization is that it is often harder to enforce. Many states penalize banks and other institutions that refuse to honor a valid POA, but similar laws do not exist for most types of letters of authorization. In general, a letter of authorization tends to grant power for a more limited purpose and shorter period.

Before deciding on what kind of a document you want, you'll need to consider what function it will serve. If you're authorizing someone to pick your child up from school, a letter of authorization will be suitable. But if you're wanting to authorize someone to be able to make payments on your behalf, for example, you'll want to get a power of attorney form instead. Make sure you're in compliance with state laws for whatever form you decide one.

This portion of the site is for informational purposes only. The content is not legal advice. The statements and opinions are the expression of author, not LegalZoom, and have not been evaluated by LegalZoom for accuracy, completeness, or changes in the law.