Powers of attorney are legal documents which provide one individual with the authority to act on behalf of another individual. The individual who is given the authority to act is referred to as the agent or, in some cases, the attorney-in-fact.
The individual on behalf of whom the agent may act is referred to as the principal. It is important to note that the attorney-in-fact is not required to be an 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 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.
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:
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.
Powers of attorney typically go into effect when an individual is incapacitated. However, they may also go into effect in other situations, including:
There are numerous different types of powers of attorney, such as:
Each of these types have their own terms regarding when they go into effect.
Powers of attorney should contain several important terms and information, including:
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.
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.
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.
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.
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