Powers of Attorney
A power of attorney (POA, for short) is a grant of authority to someone else to act in your behalf. The person granting the power is the “Principal.” The person authorized to act is the “attorney in fact” (AIF).
A POA must be in writing to make it clear to the AIF and to financial institutions and to others what the AIF is authorized to do.
Types of Powers of Attorney
Special Power of Attorney With this type of POA the Principal grants the AIF authority to act in only limited situations. For example, a power of attorney form used by a bank is a special power of attorney because it applies only to accounts the Principal has at that bank.
Limited Power of Attorney A limited POA authorizes the AIF to act only for a specific period of time. For example, the Principal may authorize the AIF to manage her financial affairs while she is out of the country between the dates of February 1 and February 21, 2010. The AIF’s authority ceases after that date.
A special limited POA grants the AIF only limited authority for only a specified period of time. For example, if a couple has bought a house, but the wife will be out of town on business on the settlement date, she can give a special limited POA to her husband authorizing him to sign all purchase and loan documents provided the settlement occurs between the dates she will not be available.
General Power of Attorney With this type of POA the Principal grants the AIF broad authority to act on his behalf in all financial and property matters. It becomes effective immediately upon execution and, unless it is revoked, remains effective until the Principal’s mental incapacity or death, whichever occurs first. The AIF is authorized to add or withdraw money and assets from bank and investment accounts, pay bills, sell real estate, hire caregivers, if necessary, and to undertake and perform most types of financial and property-related transactions on behalf of the Principal.
If the general power of attorney is also durable, it continues in force until the death of the Principal, even during periods of the Principal’s mental incapacity.
General Durable POAs are most frequently used to enable spouses, adult children or other trusted individuals to handle the Principal’s financial affairs in the event he or she becomes mentally incapacitated, due to age, illness or injury.
Duties of the Attorney in Fact
The Attorney in Fact (AIF) is a fiduciary and has the responsibility to manage the assets of the Principal and to perform the duties outlined in the POA in the best interests of the Principal.
The AIF has a responsibility to report to the Principal from time to time as to funds received and disbursed, assets bought and sold, and funds borrowed. If any employees or independent contractors, such as caregivers or property maintenance firms, are hired, the AIF must be able to justify these expenditures.
If the Principal is not mentally competent, the AIF must report to anyone else who has an interest in the welfare of the Principal, such as other adult children and other family members.
The AIF is entitled to recoup expenses and a reasonable fee, subject to whatever restrictions or conditions the Principal may have included in the POA.
Successor Attorneys in Fact
When selecting an AIF the Principal should also appoint a successor or alternate AIF, to step in if the primary AIF dies, or is unable or refuse to serve.
Married couples generally will select each other to be their respective AIFs, but each spouse should name an adult child or other person to serve as alternate AIF in case the spouse dies, becomes mentally incapacitated, or in the event of divorce.
