Power of Attorney

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Power of Attorney

A Brief Introduction About the Power of Attorney

A power of attorney is a legal document through which one person (the agent) derives the power to act on behalf of another person (the principal). This document gives the agent the authority to perform certain tasks for the benefit of the principal. Such authority may either be a broad legal authority or a limited authority to make certain decisions concerning the medical care, finances, or property of the other person.

Most powers of attorney documents are created so as to allow the agent to represent the principal in all financial and property matters. Such documents remain in effect as long as the principal is mentally competent.

If a principal wishes a power of attorney to remain in effect even after he is no longer mentally competent, he must create a durable power of attorney. Such a durable power of attorney remains in effect even after the principal becomes incapacitated and delegates powers to the agent to make decisions regarding the principal’s medical care (known as medical power of attorney) and finances (known as a financial power of attorney). Hence a durable power of attorney is used to give certain instructions as to how certain affairs are to be handled when the person is making it no longer has the ability to make decisions for himself.

There is a misconception sometimes that a durable power of attorney will continue to be in effect even after the principal dies. However, this is not true. It ceases to be in effect when the principal dies just like the regular power of attorney. It can survive mental incapacity but not death.

Who Take the Power of Attorney: People Involved

A power of attorney is entered into by the person who creates a power of attorney (known as the principal) and the person who is appointed to carry out certain tasks on behalf of the principal (known as the agent). Care must be taken to ensure that an agent is a person who the principal trusts and has confidence in.

Purpose of the Power of Attorney: Why Do You Need It?

The purpose of a power of attorney is to delegate certain powers to the agent that the principal may not be able to perform due to any reason whatsoever. It may be used when the principal is ill or is not present to sign any legal or financial document.

There can be different types of power of attorney documents depending on the circumstances and the intention of the principal. These types are – special, general, or temporary. A special power of attorney is also known as a limited power of attorney and is created for a specific act or acts. A general power of attorney is the type of document that gives power to the agent to make all business or financial decisions. A temporary power of attorney is made for a limited time period.

These various documents can prove to be very helpful when a person is unable to perform certain tasks and wishes to appoint another person for the same. The reason may be that the principal is abroad and is not present to carry out certain transactions or that he is not physically fit for the same. Through a power of attorney, the principal can ensure that the acts mentioned in the document are carried out effectively by the agent and the tasks are completed as per the wishes of the principal.

It is the duty of the agent to exercise the powers bestowed upon him in the manner desired by the principal. He does not have the right to perform any task or carry out any activity that has not been delegated to him under a power of attorney.

Contents of the Power of Attorney

A power of attorney must include the name of the principal and the agent to whom authority is delegated. The agent must be identified clearly with his contact information and address so as to avoid any confusion regarding the identity of the agent. There should be a detailed description of the powers and acts that the agent has the power to commit. The principal may also mention the manner in which such acts are to be carried out, and the powers are to be exercised by the agent. It is very important that the powers delegated to the agent are described and listed out in as much detail as possible.

If it is a financial power of attorney, detailed instructions must be provided as to how the money of the principal is to be invested and how the finances shall be handled by the agent. In case of a medical power of attorney, there must be instructions given to the agent as to how the medical care of the principal is to be handled.

It must be mentioned that the relationship between the principal and the agent is a fiduciary one. This means that the agent shall act in the best interest of the principal. A power of attorney must also contain the date of execution of the document.

How to Draft the Power of Attorney?

The following are the steps to follow while drafting a power of attorney:

  • The principal and the agent must be identified clearly in the document. This is done by mentioning the addresses and contact information of both parties.
  • The powers that are being entrusted to the agent must be clearly mentioned in a detailed manner. Any instruction, direction, or desire of the principal must be laid down in writing. This can help a third party understand what powers the agent can exercise under a power of attorney.
  • A durable power of attorney must be specifically mentioned.
  • The principal must sign a power of attorney in the presence of witnesses after carefully going through every provision in the document.
  • A notice must be sent to the agent notifying him about the principal’s desire to appoint him as the agent. The agent must carefully read the notice and the terms of a power of attorney to understand his powers and responsibilities. He then may sign it and accept his appointment as the agent.
  • Two witnesses must sign a power of attorney in the presence of each other.
  • It is recommended that a power of attorney should be notarized as this will help prove the authenticity of the document. This is very important to avoid any third party questioning the validity of a power of attorney.

Benefits and Drawbacks of the Power of Attorney

The following are the benefits and drawbacks of having a power of attorney:

  • It is an easy & inexpensive way to give the agent the ability to handle the affairs of the principal.
  • Having a durable power of attorney in place helps a person take care of certain medical decisions and financial transactions when he is incapacitated or too ill to make decisions for himself. Thus he can ensure that his wishes are fulfilled in the way that he wants.
  • A possible drawback of a power of attorney could be that the agent may commit certain acts that are outside the purview of his powers or in extreme cases may even commit fraud against the principal. Hence, it is important that the principal should appoint a person whom he trusts as his agent.

What Happens in Case of Violation?

There may be an occurrence where the agent exceeds the powers that have been given to him under the power of attorney or misuses such powers. This misconduct may include embezzlement of money, transferring any asset that belongs to the principal or any other act that causes a loss to the principal.

In such cases, the agent can be held liable by a court and be made to refund to the principal the entire amount lost by the misuse along with some interest. He can also be liable to pay damages to the principal for any loss that the principal may have suffered on account of the misconduct of the agent. If there is any breach of fiduciary duty, the principal can file a lawsuit(1) against the agent.

There may also be criminal penalties if the agent’s conduct amounts to a crime such as fraud, money laundering, or embezzlement.

In conclusion, a power of attorney is a useful document through which an agent is authorized by the principal to perform certain tasks or to take certain decisions. The agent must be selected with care by the principal, and it must be a person the principal can repose trust in. This will go a long way in protecting the interests of the principal and ensuring that his instructions and wishes are complied with. This document is the easiest way through which the principal can appoint a person to take care of his affairs.