Power of Attorney
A ‘power of attorney’ or ‘letter of attorney’ in common law systems or ‘mandate’ in civil law systems is a legal instrument that is used to authorize someone to act on someone else’s behalf in a legal or business matter. The person authorizing the other to act is the “principal” or “grantor (of the power)”, and the one authorized to act is the “agent” or “attorney-in-fact”. The attorney-in-fact acts “in the principal’s name,” signing the principal’s name to documents and filing suit with the principal’s name as plaintiff, for example.
There are only two primary requirements for a Power of Attorney:
- Soundness of Mind: The person signing the power of attorney cannot be mentally ill or mentally disabled and must be acting on his or her own free will, without undue influence from others.
- Notary or Witnesses: In most states, the Power of Attorney must be signed in the presence of a notary public or two witnesses.
The power of attorney (often called “POA” for short) may be oral or may be in writing. Many institutions, such as hospitals, banks, and the I.R.S., require a power of attorney to be in writing before they will honor it, and they usually want to keep an original for their records.
As one kind of agent, an attorney-in-fact is a fiduciary for the principal, so the law requires an attorney-in-fact to be completely honest with and loyal to the principal in their dealings with each other. If the attorney-in-fact is being paid to act for the principal, the contract is a separate matter from the power of attorney itself, so if that contract is in writing, it is a separate document, kept private between them, whereas the power of attorney is intended to be shown to various other people. Powers of Attorney are only as good as the agents who are appointed. Appointing a trustworthy person as an Agent is critical. Without a trustworthy Agent, a Power of Attorney becomes a dangerous legal instrument, and a threat to the Principal’s best interests.
The “equal dignity rule” is a principle of law that requires a document authorizing someone representing someone else to have been appointed with the same formality as required for the act the representative is going to perform, and it applies to powers of attorney. This means, for example, that if you give someone your power of attorney to sign the papers to sell your house, and the law requires that signature on the deed to be notarized, then your power of attorney authorizing that attorney in fact to sign the deed must be notarized, too.
General Power of Attorney
A general power of attorney (or short form) is very broad and provides extensive powers to the agent or attorney-in-fact to conduct all transactions permitted under the law for the principal.
Special or Limited Power of Attorney
A power of attorney may be “special” or “limited” to one specified act or type of act and whatever it defines as its scope for the principal, giving the agent or attorney-in-fact only specific powers set forth in the document.
“Nondurable” Power of Attorney
A “Nondurable” Power of Attorney takes effect immediately. It remains in effect until it is revoked by the Principal, or until the Principal becomes mentally incompetent or dies. A “Nondurable” Power of Attorney is often used for a specific transaction, like the closing on the sale of residence, or the handling of the Principal’s financial affairs while the Principal is traveling outside of the country. A “Nondurable” Power of Attorney enables a Principal to decide in advance who will make important financial and business decisions in the future.
“Durable” Power of Attorney
Under the common law, a power of attorney becomes ineffective if its grantor dies or becomes incapacitated, meaning unable to grant such a power, because of physical injury or mental illness, for example unless the grantor (or principal) specifies that the power of attorney will continue to be effective even if the grantor becomes incapacitated (but any such power ends when the grantor dies). The document must contain specific provisions indicating that the document will remain in effect notwithstanding incapacity or disability of the principal. The “Durable” Power of Attorney may be used immediately, and is effective until it is revoked by the Principal, or until the Principal’s death.
“Springing” Power of Attorney
A Power of Attorney may be drafted so that it goes into effect as soon as it is signed. A “Springing” Power of Attorney becomes effective at a future time. That is, it “springs up” upon the happenings of a specific event chosen by the Power of Attorney. A “Springing” Power of Attorney remains in effect until the Principal’s death, or until revoked by a court. In some U.S. states and other jurisdictions it is possible to enact a springing power of attorney; i.e., a power that only takes effect after incapacitation of the grantor or some other definite future act or circumstance. After such incapacitation the power is identical to a durable power, but, unlike a durable power, cannot be invoked before the incapacity. This is often used to allow a spouse or family member to manage the grantor’s affairs in case illness or injury makes him unable to act, while retaining the power for himself before the incapacity occurs.
Health Care Power of Attorney or Health Care Proxy
In some jurisdictions, the proper legal instrument for delegating health-care decisions to another is called a Health care Proxy. It is a document that allows you to designate a person (an “Agent”) who will have the authority to make health care decisions on your behalf if you are unconscious, mentally incompetent, or otherwise unable to make such decisions. This document only becomes effective when you do not have the capacity to give, withdraw or withhold informed consent regarding your health care. In many states you can also express your wishes regarding whether you wish to receive “life-sustaining procedures” if you become permanently comatose or terminally ill, in the Health Care Power of Attorney document.
In some jurisdictions such a durable power of attorney can also function as a “living will“, which can be used to appoint someone to make health-care decisions for the grantor, up to and including “pulling the plug” on machines keeping them clinically alive. A Health Care Power of Attorney is different from a Living Will because it allows you to appoint someone to make health care decisions for you. A Living Will only allows you to express your wishes concerning life-sustaining procedures.
Amending and Revoking a Power of Attorney
Since there is no commonly acceptable way to amend a Power of Attorney, it is usually best to just prepare a new document. Be sure to not make any corrections by erasing or writing on the original document, since this could jeopardize the validity of the document. Unless the power of attorney has been made “irrevocable” (by its own terms or by some legal principle), the grantor may revoke the power of attorney by telling the attorney in fact it is revoked; however, if the principal does not inform third parties and it is reasonable that the third parties could rely upon the power of attorney being in force, the principal may still be bound by the acts of the agent, though the agent may also be liable for such unauthorized acts.
Agent’s obligations to a Principal
The Agent is obligated to act in the best interests of the Principal, and to avoid any “self-dealing.” Self-dealing is acting to further the selfish interests of the Agent, rather than the best interest of the Principal. An Agent appointed in a Power of Attorney is a fiduciary, with strict standards of honesty, loyalty and candor to the Principal. An Agent must safeguard the Principal’s property, and keep it separate from the Agent’s personal property. Money should be kept in a separate bank account for the benefit of the Principal. Agents must also keep accurate financial records of their activities, and provide complete and periodic accountings for all money and property coming into their possession.
Several Agents
You may appoint multiple Agents in a Power of Attorney. If you appoint two or more Agents, you must decide whether they must act together in making decisions involving your affairs, or whether each can act separately. There are advantages and disadvantages to both forms of appointment. Requiring your Agents to act jointly can safeguard the soundness of their decisions. On the other hand, requiring agreement of all your Agents can result in delay or inaction in the event of a disagreement among them, or the unavailability of one of them to sign legal documents. Allowing your Agents to act separately may ensure that an Agent is always available to act for you. But it may also result in confusion and disagreements if the Agents do not communicate with one another, or if one of them believes that the other is not acting in your best interests.
Successor or Substitute Agents
There is always the possibility that the person or organization you appoint as your Agent either is unable to serve or unwilling to serve. That’s why you have the option of appointing a Successor or Substitute Agent who can take over as Agent if necessary. Here is an illustration of why appointing a Successor Agent is a good idea: An elderly husband names his elderly wife as his Agent. After signing the power of attorney document, they are both diagnosed as having Alzheimer’s disease. The wife becomes mentally incompetent and can’t serve as her husband’s Agent. The husband is also mentally incompetent and can’t sign a new power of attorney. If the husband had named a Successor Agent, he or she could have taken over as Agent.
