A power of attorney is a legal document that gives another person the authority to make decisions on your behalf when you become incapable of doing so due to injury or other circumstances. The person given the authority to act is known as the agent (or, in many cases, as the attorney-in-fact).
The person on whose behalf the agent is allowed to act is referred to as the principal. Having a valid power of attorney in place can be a great asset to you and your family, especially in a time of crisis.
Many powers of attorney can specifically address one or more aspects of a family's finances, including giving someone the authority to
- Pay the bills, including taxes;
- Buy or sell property (including taking out a mortgage or selling your car);
- Sign off on investment or bank transactions;
- Sign off on insurance policies; and
- Hire someone to represent you in court (if necessary)
You can also give your attorney-in-fact the authority to take responsibility for other affairs, such as making repairs to your home or running your business.
The person you choose to give power of attorney does not actually have to be an attorney. Power of attorney simply means that you are allowing someone else to take on the responsibilities to deal with certain aspects of your finances that normally only you would be allowed to handle.
Many people commonly designate a family member or close friend as their attorney-in-fact. Additionally, someone who has been granted power of attorney cannot simply do as they please. Instead, they take on the responsibility of acting in your best interests.
Requirements in Creating a Valid Power of Attorney
A power of attorney must be recorded in writing. The agent granted rights may exercise all rights and powers which are given to them under the power of attorney.
The agent, however, may not act beyond the scope of the authorization that was given to them. In general, a power of attorney is required to be signed and dated by the principal.
A principal is required to have sufficient mental capacity to enter into a power of attorney. Other requirements to create a valid power of attorney may include:
- The principal acknowledges the power of attorney document before a notary public; and
- The agent signs and dates the power of attorney document before a notary public.
Types of Powers of Attorneys
The length of time a power of attorney will last depends upon whether it is a durable power of attorney or a non-durable power of attorney. A durable power of attorney extends beyond the incapacity of the grantor.
It will typically contain specific language to that effect, for example, “[t]his power of attorney shall not be affected by my 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, that they do not extend beyond the death of the principle. Non-durable powers of attorney are revoked by operation of law either by the incapacitation of the grantor or the death of the grantor.
This type of power of attorney typically remains valid until a notice of disability or death is received by the agent.
Types of Decisions a Power of Attorney May Be Used for
A power of attorney may be used for both a general and a specific purpose. General powers of attorney are comprehensive in scope.
This type of power of attorney typically gives the agent all of the powers and rights which the principal possesses. For example, general powers of attorney may authorize the agent to:
- Sign documents;
- Pay bills; and
- Make all decisions with respect to the principal'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 incapacitation or death of the grantor, as noted above, unless the grantor rescinds it at an earlier time.
Powers of attorney may authorize an agent to make decisions related to more specific issues, for example, transactions related to a single piece of property. Power of attorneys that authorize an agent to act on behalf of a principal with respect to one specific, single transaction are referred to as specific, or limited, powers of attorney.
What Should be Contained in a Power of Attorney?
Powers of attorney should contain several important terms and information, including:
- Which individual is named to be the principal's representative;
- The purpose of the power of attorney arrangement, for example:
- medical;
- financial; or
- other purpose;
- The scope of the duties and responsibilities that are to be handled by the agent;
- Specific dates or conditions which will trigger the power of attorney going into effect; and
- The exact manner and conditions under which the power of attorney can be terminated.
In some cases, powers of attorney may be modified in the future. In addition, certain power of attorney forms include clauses regarding the legal action that can be taken in the event of a dispute.
For example, the parties may agree that a lawsuit is suitable as a remedy for a dispute. Or, the parties may determine that alternate dispute resolution, such as medication, is the best method for handling a dispute.
Two Common Scenarios Where Powers of Attorneys are Used
A common type of durable power of attorney is the health care proxy. A health care proxy is used for a principal to appoint an agent who makes health care decisions on their behalf.
Health care proxies do not become effective until the grantor becomes incapacitated. The proxy remains in effect despite the incapacity.
In general, to be valid, health care proxies must be in writing and signed by the grantor. Some states require that the proxy be signed and witnessed by one or more adults.
A proxy is also required to contain a provision that states that the grantor appeared to execute, or sign, the proxy free of duress. Another common reason powers of attorney are used is for estate planning purposes.
Powers of attorney may provide an agent with the right to manage assets which may become the property of the grantor's estate when the grantor passes away. For example, if the grantor who created a power of attorney holds a 401(k) account, the agent may, if the power of attorney authorizes them to do so, make investment decisions related to the 401(k) until the grantor's death.
Power of Attorney Scams
A power of attorney scam occurs when one party deceives another party into allowing them to act as their representative. These types of scams are common among elderly individuals.
In some cases, it may even occur between family members or relatives. One way to prevent these types of scams is to include clear instructions regarding when the representation will go into effect.
In many cases, the scam is accomplished because the individual granting the power of attorney was not completely clear regarding the manner in which the relationship went into effect.
What if I Don't Have a Power of Attorney?
There is no strict requirement that you have a power of attorney in place. However, if you become unable to manage your own affairs, it can make things more difficult for you and your family.
Often, if you do not have a power of attorney and you become incapacitated, your state may require a court hearing in order to prove you are mentally incompetent and appoint a legal guardian to act in your best interests. Having a power of attorney in place avoids any undue delay in case something were to happen to you.
When Does a Power of Attorney Go into Effect?
There are different types of powers of attorney, depending on what responsibilities and what tasks the attorney-in-fact is allowed to take on. You can determine the scope of your attorney-in-fact's duties in the written document.
You can control when the power of attorney goes into effect based on how your power of attorney is drafted. You can make the decision to have it go into effect as soon as it has been signed. Or, of course, you could also make the power of attorney conditional upon your first becoming incapacitated.
If you decide to exercise that option, the power of attorney document should lay out the process of doctor certification. Basically, if the power of attorney only becomes effective if you have become incapacitated, then the document should detail how to determine whether you are incapacitated.
Can I End the Power of Attorney Whenever I Want?
Yes. Just like you can control when the power of attorney becomes effective, you can also control when the power of attorney ends. There are also certain circumstances that will cancel the power of attorney.
These may include:
- You can cancel or revoke the power of attorney yourself at any time;
- If there is some sign of fraud or mental incompetence, a court may declare the power of attorney document void or invalid;
- In most states, if you grant your power of attorney, and you end up getting divorced, your spouse's power of attorney may automatically become null and void;
- If your attorney-in-fact is not available when needed, their power may be cancelled. For this reason, it is a good idea to name an alternate attorney-in-fact; and
- If you die, the power of attorney is automatically cancelled. Your attorney-in-fact cannot continue to manage affairs for you after your death. If you want that person to have control of your finances and affairs after you die, then you must name them executor of your estate in your will.
How Can A Lawyer Help Me With Power of Attorney Arrangements?
Naming a person to serve as your attorney-in-fact is an important decision to make. Your attorney-in-fact will have power over your finances and other business, so you want to make sure you choose someone trustworthy. Deciding which finances or other affairs your attorney-in-fact is also important, and can be a complex process. While your appointed agent does not have to be a lawyer, you may want to talk to a lawyer about setting up your power of attorney.
A qualified will attorney can help you decide on the right person to take on the responsibilities of power of attorney. Your attorney can also help you figure out which financial matters would be the most appropriate and safest to allow your attorney-in-fact to handle, and which financial matters you might want to keep confidential. Your attorney can also draft the document that bestows the power of attorney on your selected agent, making sure that it covers exactly the assets that you want and need it to.
A power of attorney arrangement may lead to confusion if the documents are not clearly drafted and organized. It may also lead to a dispute or fraud, especially if one of the parties is not aware of the scope of the agreement.
It may be helpful to consult with an estate lawyer if you need assistance drafting, reviewing, or enforcing a power of attorney document. Your lawyer can inform you of what steps to take as well as can represent you in court if a dispute arises.
