It's a common enough phrase, but do you really know what a power of attorney is? And more importantly, would you know when you need one?

The basic premise is that a power of attorney is a legal agreement that gives someone the right to act on your behalf in certain circumstances. Most people should have someone in their life with some amount of power of attorney privileges.

For example, if you become disabled or otherwise incapacitated, you can have someone else collect your income, pay bills, sell assets or authorize any medical care. The most usual arrangement is that your spouse has power of attorney for you, though that's not always the case.

If you haven't established someone to have power of attorney, the courts may have to appoint someone as a guardian or conservator on your behalf. This is a very time-consuming and expensive way to handle the situation.

Don't let the term confuse you. The person you give power of attorney to doesn't need to actually be an attorney or any other legal professional. They are simply allowed to act as an attorney for you. Once you've given them this privilege, it may never come into play and you can remove it whenever you wish.

You should obviously choose someone that you trust because they are going to have the power to make important decisions that will effect your life. Besides trust, they should have the knowledge and experience to handle financial or medical situations.

The laws involved in creating a power of attorney vary from state to state, so it's best if you ask your actual attorney about the details. You should even be able to find forms to help you do it yourself, if that's what you prefer to do.

You might only need a basic power of attorney, but there are several different types of agreements that can be made. A general power of attorney gives another person a broad range of powers over your affairs. Or you can narrow it down with a POA just for financial matters, medical issues or even specifically for real estate or child care.