A power of attorney is a legal document that provides an individual with the authority to act on behalf of another individual. The individual who is given the authority to act is called the agent, and is sometimes referred to as the attorney-in-fact.
The individual on whose behalf the agent is given permission to act is called the principal. An attorney-in-fact does not have to be an actual attorney.
What is Required to Create a Valid Power of Attorney?
A power of attorney must be in writing. It authorizes an agent to act on behalf of the principal or the grantor of the power.
Agents may exercise all rights and powers given to them under the power of attorney. However, agents may not act beyond the scope of the authorization which is provided in the power of attorney.
In general, a power of attorney is required to be signed and dated by the principal. The principal must have sufficient mental capacity to authorize the power of attorney.
There are also elements that may be required for a valid power of attorney to be created, including:
- The principal acknowledges the power of attorney document in front of a notary public; and
- The agent signs and dates the power of attorney document in front of a notary public.
What Should be Contained in a Power of Attorney?
There are several important elements that should be contained in a power of attorney, including:
- Which individual is named to be the individual’s representative;
- The purpose of the power of attorney arrangement, such as whether it is:
- Financial; or
- For another purpose;
- The scope of duties and responsibilities that are to be handled;
- Specific dates or conditions which will trigger the power of attorney going into effect; and
- The conditions and manner under which the power of attorney can be terminated.
A power of attorney document may, in some cases, be modified in the future. In addition, certain power of attorney forms include a clause that outlines the steps to take in the event of a dispute.
For example, the parties may agree that a lawsuit is acceptable to remedy a dispute. In other cases, the parties may determine that alternate dispute resolution is the way disputes should be handled.
What Types of Powers of Attorneys Exist?
The duration of a power of attorney depends upon whether it is a durable power of attorney or a non-durable power of attorney. A non-durable power of attorney is one which is revoked by operation of law either by the grantor’s death or when the grantor becomes incapacitated.
A non-durable power of attorney, in general, will remain valid until the notice of death or disability is received by the agent. A durable power of attorney, on the other hand, extends beyond the grantor’s incapacity.
A durable power of attorney will contain specific language to that effect, for example, “[t]his power of attorney shall not be affected by subsequent disability or incompetence.” A durable power of attorney can be general in scope or limited in scope.
A durable power of attorney is limited in one significant aspect, which is that they do not extend beyond the death of the principal.
What Types of Decisions May a Power of Attorney be Used For?
A power of attorney may be used for both a general purpose and for a specific purpose. A general power of attorney typically gives the agent all of the powers and rights which the principal possesses.
For example, a general power of attorney may authorize the agent to do the following:
- Sign documents;
- Pay bills; and
- Make all decisions with respect to the grantor’s real and personal property.
A general power of attorney may be used regardless of whether the principal is incapacitated. General powers of attorney end upon the death or incapacitation of the grantor unless the grantor revokes the document at an earlier time.
A power of attorney can authorize the agent to make decisions with respect to specific issues, such as transactions related to a specific piece of property. This type of power of attorney is referred to as a limited or specific power of attorney. It authorizes the agent to act on behalf of the principal with respect to a single, specific transaction.
When Does a Power of Attorney Go into Effect?
As previously noted, a power of attorney authorizes an individual to act on behalf of another individual in the event that they become incapacitated. It generally goes into effect when the principal becomes incapacitated.
However, a power of attorney may also go into effect in other situations, including:
- According to a specific date which is stated in the power of attorney documents;
- If the individual is out of the country or cannot be present to sign a document;
- According to verbal instructions; or
- If the individual has become otherwise unable to make their own legal decisions.
There are numerous different types of powers of attorney, including a:
Each different type of power of attorney may have its own terms regarding when it goes into effect.
What are Two Common Scenarios Where Powers of Attorneys are Used?
One common scenario when a durable power of attorney is used is a healthcare proxy. With a healthcare proxy, the principal appoints an agent to make decisions on their behalf regarding healthcare decisions.
Healthcare proxies do not go into effect until the grantor becomes incapacitated. The proxy then remains in effect despite the grantor’s incapacity. In general, in order to be valid, the healthcare proxy is required to be in writing and signed by the grantor.
The proxy is required to contain a provision that states that the grantor appeared to execute the healthcare proxy free of duress. Another purpose for which a power of attorney is frequently used for purposes of estate planning.
A power of attorney may provide an agent with the right to manage assets that may become the property of the estate of the grantor when they pass away. For example, the grantor may have a 401(k) account.
If the grantor becomes incapacitated and they have created a power of attorney, the agent may make investment decisions regarding the 401(k) until the grantor passes away, so long as the power of attorney validly authorizes the agent to do so.
What Are Power of Attorney Scams?
Power of attorney scams arise when an individual deceives another individual into allowing them to act as their representative. This commonly occurs among elderly individuals.
This type of scam may even occur between family members or relatives. One way for individuals to prevent power of attorney scams is to include clear instructions regarding when the power of attorney can go into effect.
In many cases, a scam occurs because the individual who grants the power of attorney is not completely clear regarding the manner in which the relationship went into effect.
Do I Need an Attorney to Draft My Power of Attorney?
It is important to have an attorney draft your power of attorney. Your attorney can help you create a power of attorney which is tailored to your specific needs and circumstances.
Your attorney will also advise you regarding what your agent’s rights are as well as what your rights are with respect to the power of attorney. Should a dispute arise related to the scope, validity, or enforceability of the power of attorney, your attorney will represent you in court.