Power of Attorney, or “POA,” refers to a legal document that grants one person the authority to act on behalf of another person. The person granted the authority is referred to as the agent, or the attorney in fact. The person on whose behalf the agent may act is known as the principal. It is important to note that despite the terms used, the person granted the power of attorney is not always an actual attorney, nor do they need to be.
The principal, or person who grants power of attorney, does not completely surrender their right to make their own decisions. Rather, the attorney in fact has the ability and legal authority to simply act on their behalf. As such, the attorney in fact must defer to the decisions made by the principal so long as the principal has the mental capacity to do so. Additionally, the principal may revoke the Power of Attorney designation at any time, and for any reason.
Power of Attorney authorization must be in writing. An agent may exercise all rights and powers that have been granted them under the Power of Attorney. However, the agent may not act beyond the scope of their authorization. In general, a Power of Attorney document must be signed and dated by the principal in order to be valid. Additionally, the principal must have sufficient mental capacity to enter into such an arrangement.
What Sort of Decisions Can a Power of Attorney Be Used For?
Powers of Attorney may be used for general or specific purposes. A general Power of Attorney generally grants an agent all of the rights and powers that the principal has. An example of this would be that the attorney in fact is authorized to sign documents, pay bills, and make all decisions regarding the principal’s real and personal property. General Power of Attorney may be used regardless of whether or not the principal is incapacitated, and ends when the principal dies or becomes incapacitated. The principal may terminate the Power of Attorney at any time.
A Power of Attorney may authorize the attorney in fact to make decisions regarding something more specific, such as a single transaction involving a single piece of property. This would be referred to as a limited or specific Power of Attorney.
A specific type of Power of Attorney, known as a health care proxy, is commonly used when a principal needs to appoint someone to make healthcare decisions on their behalf. Health care proxies do not become effective until the principal becomes incapictated, and the proxy is to remain in effect despite the incapacity. Generally, in order for a health care proxy to be valid, it must be in writing and signed by the principal.
Some states may require that the signing of the proxy be witnessed by one or more adults not associated with the proxy. And, the proxy must contain a provision that states that the principal appears to have executed the proxy free from duress.
Does a Power of Attorney Give Control Over the Principal’s Money?
Another common circumstance that utilizes a Power of Attorney is estate planning. A Power of Attorney may give an agent the right to manage assets that could become property of the principal’s estate when the principal dies. An example of this would be if the principal owns a 401(k) account, and has created a power of attorney. If they become incapacitated, the agent may make investment decisions with regards to the 401(k) up until the principal dies.
Attorneys in fact do have the power to spend the principal’s money, generally to cover pre existing obligations such as bills and debts. It is illegal for the attorney in fact to mix their funds with those of the principal. Additionally, the attorney of fact does not have the authority to make unauthorized gifts on behalf of the principal. An example of a gift would be a conditional gift, or a provision in a will which states that money or property will only be distributed from the estate when a specific event takes place.
The attorney in fact owes the principal a fiduciary duty. What that means is that the attorney in fact must act in accordance with the principal’s benefit, and always with the principal’s best interests in mind. As such, the attorney in fact should never “donate” the principal’s money to themselves or anyone else without the express permission of the principal.
If the attorney in fact breaches their fiduciary duty, and does not act in the best interests of the principal, the principal may sue for the violation and recover significant damages. Additionally, the principal can and should terminate the Power of Attorney, as this would prevent the attorney in fact from distributing any more unauthorized gifts.
Do I Need an Attorney for Gifts and Power of Attorney?
A skilled and knowledgeable estate attorney should be consulted before you decide to execute a Power of Attorney. An experienced estate attorney can ensure someone is chosen who will keep your best interests in mind and protect your estate. Additionally, should any issues arise, an attorney can represent you in court as needed.