Power of Attorney

What is a Power of Attorney?

A power of attorney is a legal document giving one person the power to act for another person. A power of attorney is often used in the event of a person's illness, disability or absence. In granting a power of attorney, the person is authorising the other person to make legal decisions on their behalf in their property, financial and medical affairs. The appointment of a power of attorney can be effective immediately or can become effective when the person is unable to make decisions on their own.

Parties to a Power of Attorney

There is specific terminology for the parties to a power of attorney. The person granting the power is a principal, donor or grantor. The person receiving the power is an agent. In the U.S., however, this person is an attorney-in-fact. An attorney-in-fact is not the same as an attorney-at-law. The latter is a legal practitioner in the U.S. and has a licence to practise law in a particular jurisdiction.

An attorney-in-fact is not necessarily a lawyer but may be, for example, a trusted family member, friend or acquaintance. This type of attorney-in-fact cannot, therefore, engage in acts that would constitute the unauthorised practice of law.

Responsibilities of an Agent

Once appointed with the power of attorney, the agent becomes a fiduciary for the principal. A fiduciary is someone who owes a duty of loyalty to safeguard the interests of another person. The law imposes upon the fiduciary a certain obligation referred to as a fiduciary duty. This legal duty requires that the agent acts in the best interests of the principal, with care, honesty, loyalty and good faith.

Capacity

Importantly, a principal must have the mental capacity to grant a power of attorney. The general meaning of mental capacity is the ability to make a decision. So, someone who is unable to make a particular decision at the necessary time will lack mental capacity.

The legal test for mental capacity varies from jurisdiction to jurisdiction, depending on the governing legislation. In countries with the common law system, the courts will also determine what constitutes mental capacity. This includes the UK, US, Canada, Australia, New Zealand and other British Commonwealth countries. Typically, mental capacity will be construed as being capable of acting, making decisions, communicating decisions, understanding decisions or retaining the memory of decisions.

Form and Execution

In many jurisdictions, a power of attorney can be oral, while others require a power of attorney to be in writing. A power of attorney must be signed before a notary public under some laws, such as in the State of New York. In other jurisdictions, a power of attorney must be witnessed, or both witnessed and notarised.

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General Rules in Granting a Power of Attorney

Every power of attorney will differ, but the following rules apply to all powers of attorney. Generally, a power of attorney should:

Be in writing. An oral power of attorney is acceptable in some jurisdictions. But verbal instruction is not a reliable substitute for spelling out a power of attorney on paper. A clearly written power of attorney will prevent future argument and confusion.

Use the proper format. Many variations of power of attorney forms exist. A principal should decide which powers they wish to grant their agent and prepare a power of attorney which specifically reflects that. The principal should also ensure the form they use satisfies the requirements of the jurisdiction they live in. And is acceptable in a court of law.

Identify the parties. The principal should check whether their jurisdiction requires them to use specific terminology, for example, “attorney-in-fact” rather than “agent”.

Detail the powers the principal wants to delegate. A power of attorney can be as broad or as limited as the principal wishes.However, each of the powers granted must be clear, even if the principal grants the agent "general power of attorney". In other words, the principal cannot grant sweeping authority such as, “I delegate all things having to do with my life.”

Specify whether the power of attorney is durable. As stated, a power of attorney terminates if the principal becomes incapacitated. Therefore the principal must indicate that the power of attorney is enduring to ensure the agent keeps their authority in this event.

Be notarised. In many jurisdictions, powers of attorney must be witnessed or notarised. The principal should check the law in their jurisdiction. It is prudent to have a power of attorney witnessed or notarised, even if the jurisdictional rules don't require it.

Be filed. In some jurisdictions, specific kinds of powers of attorney must be filed with a court or government office in order to be legally enforceable. For instance, powers of attorney transferring real estate have to be recorded in the court or government authority in which the property is located.