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.
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.
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.
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.
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.
The principal can grant the agent both a broad legal authority or a limited authority to make legal decisions about their affairs. The extent of the agent's powers will depend on the type of power of attorney the principal has granted. Generally, there are four types of powers of attorney:
A general power of attorney is comprehensive and gives the agent all the powers and rights that the principal has. For example, a general power of attorney may give the agent the right to sign documents for the principal, pay the principal's bills and conduct financial transactions on the principal's behalf. It is a useful legal instrument if, for example, the principal is admitted to hospital for a period or is away on holiday. A general power of attorney ends on the death or incapacitation of the principal unless the principal revokes it before then.
A limited power of attorney (sometimes called a special power of attorney) gives the agent the power to act in the principal's place for a very limited purpose. For example, a limited power of attorney could give the agent the right to sign a deed to property for the principal on a day when the principal is out of town. It usually ends at a time specified in the document.
A durable power of attorney (referred to as an enduring power of attorney in non-U.S. jurisdictions) is different from a general power of attorney in that it remains in effect after the principal becomes incapacitated. If the principal becomes incapacitated without having an enduring power in place, the only way another party can act lawfully on their behalf is by a court imposing a guardianship. An enduring power of attorney, therefore, stops a court stepping in and appointing someone to make decisions for the principal. It remains in effect unless the principal revokes it while they have mental capacity and can be general or limited in scope.
A springing power of attorney also allows the agent to act for the principal. But it does not become effective until the principal is incapacitated. So, if a springing power is used, the principal should specify clearly exactly how and when the power springs into effect.
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.