Posted on 9/14/2012
A power of attorney (POA) is a legal document that authorizes one person or persons to handle the affairs — such as financial, legal and health matters — of another person. The POA document can be critically important if an individual becomes disabled and needs someone else to manage his or her finances, pay taxes or authorize medical treatments.
A POA usually has two parties: (1) a “principal,” and (2) an “attorney in fact,” or “agent.” The principal is the person granting authority. The attorney in fact, or agent, is the person or persons assuming the authority of the principal. It is not necessary for the attorney in fact to be a licensed attorney. In order for the POA to be legally binding, it must be signed by the principal, who must be mentally competent at the time of the signing. Most people give power of attorney to a spouse, adult relative or close friend. The principal should name an agent who knows him or her well and who will act according to the principal’s wishes and best interests. The principal also may name a substitute agent when drafting a power of attorney, in the event that the agent is unable to act.
There are generally two types of POAs: (1) a “general” power of attorney, and (2) a “special,” or “limited,” power of attorney. A general POA gives the agent broad power and authority to do nearly anything that the principal can do for himself or herself. A person giving a general POA needs to be comfortable with whomever is named as an agent, because the principal will likely be bound by whatever actions are taken on his or her behalf. A special or limited power of attorney differs from a general POA, because it limits the authority of the agent to only carry out certain prescribed powers that the principal grants. A limited POA can restrict the authority of the agent to act only on certain matters — for example financial, medical or real estate issues.
Another consideration to a power of attorney is whether the principal wants the POA to remain in force if the principal becomes mentally incompetent. These types of POAs are called “durable.” Either a general POA or a limited POA can be durable, and they remain effective or can be triggered into effect after a doctor certifies that the principal is mentally incapacitated. A POA that becomes effective only upon the mental incapacity of the principal is also called a “springing” POA.
Principals may terminate POAs at any time that they are competent to manage their own legal affairs. To terminate a POA, the principal should notify any named agent that the POA has been terminated. The principal also should collect and destroy the original and any copies of the POA, and should notify any bank or third party that may have been relying upon the POA that the POA has been revoked.
A POA automatically terminates upon the death of the principal. In other words, when the principal dies, so does the POA, and any authority of the agent is revoked. The agent is no longer authorized to act on behalf of what would now be the estate of the principle.
It is important to check with an attorney familiar with the state-specific power of attorney rules where you reside. For example in some states a POA is only as valid as someone’s willingness to accept or honor it. Any third party presented with the power of attorney in those states has the right to inform the agent they will not honor the POA.
This article is not intended as legal advice, with the understanding that the Association is not engaged in rendering specific legal, accounting, or other professional services. Each state has specific laws governing the creation and use of a power of attorney. If specific expert assistance is required, the services of a professional should be sought. Provided as a public service by the Indiana Bankers Association.