Powers of Attorney: Some Basic Principles for Principals

Powers of attorney do not refer to how much your attorney can bench press or lift. Instead, a power of attorney is a document that identifies and gives power to a person to make decisions for you in the case of incapacity. The benefits of a highly detailed, comprehensive power of attorney are numerous. Unfortunately, many powers of attorney are more general in nature and can actually cause more problems than they solve. But before we get into those benefits (which will come in later posts), let's cover some basics.

Power of Attorney Terminology

The person who signs a power of attorney, that is, the person granting the power, is the principal. The person to whom the power is given is the agent. The agent under a power of attorney has traditionally been called an "attorney-in-fact" or sometimes just "attorney." However, confusion over these terms has encouraged the terminology to change so more recent state statutes tend to use the label "agent" for the person receiving power by the document.

Power of Attorney General Law

The law of agency governs the agent under a power of attorney. The law of agency is the body of statutes and common law court decisions built up over centuries that dictate how and to what degree an agent is authorized to act on behalf of the principal. Powers of attorney are a species of agency-creating documents. In most states, powers of attorney can be and most often are unilateral contracts. This means that only the principal and not the agent signs the document. The agent accepts by the act of performance.

Powers of Attorney Considerations

Trust

The proper use of a power of attorney as an estate-planning (and elder law) document depends on the reliability and honesty of the appointed agent. Much has been written about financial exploitation of individuals, particularly seniors and other vulnerable people, by people who take advantage of them through undue influence, hidden transactions, identity theft, and the like. Guardianships and conservatorships can provide the benefits of court supervision of care of vulnerable people in such contexts. However, even though exploitation risks exist, there are great benefits to one individual (the principal) privately empowering another person (the agent) to act on the principal's behalf to perform certain financial functions.

Healthcare

A comprehensive power of attorney may include a grant of power for the agent to represent and advocate for the principal in regard to health care decisions. More commonly, a separate Healthcare Surrogate Designation addresses such health care powers. This designation may be a distinct document or combined with other health topics in a Living Will (also referred to as Advanced Directives).

Durability

Another important preliminary consideration about powers of attorney is durability. Powers of attorney are voluntary delegations of authority by the principal to the agent. The principal has not given up his or her own power to do these same functions but has granted legal authority to the agent to perform various tasks on the principal's behalf. All states have adopted a "durability" statute that allows principals to include in their powers of attorney a simple declaration that no power granted by the principal in this document will become invalid upon the subsequent mental incapacity of the principal. The result is a "durable power of attorney"—a document that continues to be valid until a stated termination date or event occurs, or the principal dies. But without that language, your power of attorney may have no power at a time you need it most.

Moving Forward

In coming posts, I'll talk about the top benefits of using a comprehensive power of attorney. Beware forms that are too simplified. Banking institutions often won't recognize such forms. And these are some of the key players you need an agent to interact with.

Choosing your agent and making sure your power of attorney provides the powers you want are important decisions. Estate planning attorneys are especially adept at handling these areas of the law. If you need to create (or update) your power of attorney designations, please contact an estate planning attorney. You can usually do this as a stand-alone document or as a part of your broader estate plan.