By: John B. Newman, Retired
Generally speaking, any person (commonly known as the “Principal”) can authorize any other person (commonly known as the “Agent”) to perform any legal acts which the Principal could perform through the use of a document known as a Power of Attorney. The document must be signed by the Principal and give the Agent specified or general authority to perform certain acts.
The scope of authority given in a Power of Attorney ranges from authority to perform a single act, such as consummating a real estate closing for a particular piece of property, to doing all lawful acts which the Principal could do. The latter type of general, unrestricted Power of Attorney is often used between spouses, particularly as they grow older. Having such a document makes it possible for the Agent-spouse to act for the Principal-spouse in conducting banking business or investments or other routine aspects of daily living in the event the Principal-spouse becomes ill, incompetent or infirm and cannot take care of these matters himself. Of course, such a general Powers of Attorney would also authorize the Agent-spouse to make major decisions such as sell or mortgage real estate.
A general Power of Attorney can even include the power to make gifts, which may be useful for estate planning purposes.
Absent unusual situations, all Powers of Attorney are revocable, which means that the Principal may cancel or revoke the power at any time unless he becomes disabled.
All Powers of Attorney terminate on the death of the Principal.
Unless a Power of Attorney is made durable, by including a statement that “This Power of Attorney shall not be affected by disability of the Principal,” or “This Power of Attorney shall become effective upon the disability of the Principal” or similar words, then the Power of Attorney shall not be effective if the Principal becomes disabled, i.e., unable to manage his property and affairs for reasons such as mental illness, mental deficiency, physical illness, advanced age or chronic intoxication. Since one of the primary uses of a Power of Attorney is when the Principal becomes disabled, most Powers of Attorney should contain either of the quoted provisions. The first provides that the Power is presently effective and remains effective notwithstanding the disability of the Principal. The second provides that the Power is not effective until the Principal is disabled. In most cases, the former is preferred so that the person who is dealing with the Agent does not have to make inquiry as to whether or not the Principal is disabled.
The duties of certain positions held by a Principal are non-delegable and cannot be transferred on to another person by a Power of Attorney. Among these would be serving as an officer or director of a corporation or other business entity or serving as a trustee of a trust. The governing documents of the entity in question must be examined to determine who can act if the “Principal” cannot.
It does not require a large imagination to see the potentials for abuse of a Power of Attorney. The Agent is obliged to act in the best interests of the Principal at all times. However, it may be a debatable question as to what those best interests are at any point in time. General Powers of Attorney given to spouses rarely cause any problems and can be extremely helpful when needed.
Powers of Attorney are extremely useful instruments for modern commerce and estate planning. However, anyone who is asked to sign a Power of Attorney should consider the decision carefully and should examine the scope of authority given to be sure that he or she trusts the Agent to act in his or her best interests at all times.
This publication is intended for general information purposes only and does not constitute legal advice. The reader should consult legal counsel to determine how the law may apply to specific situations.