Power of Attorney
Granting of legal rights and powers by a person to another person.
What is a Power of Attorney?
A power of attorney is the grant of legal rights and powers by a person, the "principal," to another, the "agent" or "attorney-in-fact." The attorney-in-fact, in effect, stands in the shoes of the principal and acts for him or her on financial, business or other matters. The attorney-in-fact can do on behalf of the principal whatever the principal may do on his own behalf--withdraw funds from bank accounts, trade stock, pay bills, cash checks-to the extent authorized in the power of attorney. But this does not mean that the attorney-in-fact can just take the principal's money and run. The attorney-in-fact must use the principal's finances as the principal would for the principal's benefit. In giving someone a power of attorney, an individual is giving the other person the right to exercise a legal right that the individual already has. People may not think of themselves as being powerful, but in fact every time they spend money, enter into contracts, sell property, cash checks, withdraw money from a bank, decide where to live and choose what kind of health care they want, they are exercising their legal rights and powers. Normally, no one else can exercise these legal rights for an individual. However, people have the right to delegate these powers to someone else--to allow this other person to act in their place. Giving someone a power of attorney does not limit an individual's own rights in any way. It simply gives the other person the power to act when or where the individual cannot act.
Normally, a power of attorney takes effect as soon as the principal signs it. If the principal wants to keep the power of attorney from taking effect until some future event takes place, he or she can execute a “springing" power of attorney. A springing power of attorney takes effect only when the event described in the instrument itself takes place. Typically, this is the incapacity of the principal as certified by one or more physicians. In most cases, even when the power of attorney is immediately effective, the principal does not intend for it to be used unless and until he or she becomes incapacitated. The attorney-in-fact should discuss this with the principal so that he or she knows and can carry out the principal's wishes.
When does Power of Attorney take effect?
Absolutely not. Only a court can take away a principal's rights through a conservatorship or guardianship proceeding. An attorney-in-fact simply has the power to act along with the principal.
Does a Power of Attorney take away the principal’s rights?
Certainly not. A principal may revoke a power of attorney at any time. All the principal needs to do is send a letter to his or her attorney-in-fact telling the attorney-in-fact that his or her appointment has been revoked. From the moment the attorney-in-fact receives the letter, he or she can no longer act under the power of attorney.
Are Powers of Attorney irrevocable?
This depends on the wording of the power of attorney and on the laws of the state in question. Some state statutes require gift-making powers to be indicated on the document. That is, the power of attorney must authorize the attorney-in-fact to make gifts. In those states, the attorney-in-fact cannot act without the specific authority to do so. A well-drafted power of attorney will specifically give the attorney-in-fact the right to make gifts (assuming that the principal wants to give the principal that authority). The power of attorney may limit the amount of the gifts or the people to whom the attorney-in-fact may make gifts. If, on the other hand, the document does not give the attorney-in-fact specific authority, but it does give him or her a general grant of power to stand in the principal’s shoes and do whatever he or she may do, the attorney-in-fact still may be able to make gifts if the law in the state in which the attorney-in-fact resides allows this. Just remember that the attorney-in-fact is acting in a fiduciary capacity and all of his or her actions under the power of attorney must be in the principal's best interest.
Can an attorney-in-fact make gifts of principal’s money to the principal’s loved ones, including the attorney-in-fact?
Yes, but only if the attorney-in-fact acts with willful misconduct or gross negligence. If the attorney-in-fact does his or her best and keeps the principal's interests in mind as the basis of his or her actions, the attorney-in-fact will not incur any liability.
Can the attorney-in-fact be held liable for his or her actions?
In most cases, when there are multiple attorneys-in-fact, they are appointed "severally," meaning that they can each act independently of one another. Nevertheless, it is important for them to communicate with one another to make certain that their actions are consistent. If they disagree or take conflicting steps, that can create a serious problem. The only solution may be a guardianship or conservatorship under which a court would choose one of them (or someone else) to make the decisions.
What if there is more than one attorney-in-fact?
Certainly. The principal may revoke the power of attorney at any time. All he or she needs to do is send the principal a letter to this effect. The appointment of a conservator or guardian does not immediately revoke the power of attorney. But the conservator or guardian, like the principal, has the power to revoke the power of attorney.
Can the attorney-in-fact be fired?
It is very important that the attorney-in-fact keep good records of his or her actions under the power of attorney; this is the best way to be able to answer any questions that may be raised. The most important rule for an attorney-in-fact to keep in mind is not to commingle the funds he or she is managing with his or her own money. The accounts should be kept separate. The easiest way to keep records is to run all funds through a checking account. The checks will act as receipts and the checkbook register as a running account.
What kind of records should the attorney-in-fact keep?
Yes, if the principal has agreed to pay the attorney-in-fact. In general, the attorney-in-fact is entitled to "reasonable" compensation for his or her services. However, in most cases, the attorney-in-fact is a family member and does not expect to be paid. If an attorney-in-fact would like to be paid, it is best that he or she discuss this with the principal, agree on a reasonable rate of payment, and put that agreement in writing. That is the only way to avoid misunderstandings in the future.
Can the attorney-in-fact-be compensated for his or her work?
A fiduciary is a person who is held to the highest standards of good faith, fair dealing and undivided loyalty with respect to the principal. The attorney-in-fact serves as the principal’s fiduciary. The fiduciary must always act in the principal’s best interest and keep his or her goals and wishes in mind in making any discretionary decision. However, since the fiduciary shares control with the principal, fiduciaries do not have the same responsibility as trustees or executors, who have total control over an estate or over trust assets. The fiduciary’s duty covers only the level of care he or she takes in his or her own actions as attorney-in-fact.