When and How is Power of Attorney Used?

A Power of Attorney is a legal document which gives one individual rights to execute legal and business transactions in the name of another. Powers of Attorney are common when one person is unable to be present for the signing of a contract, or when that person has been incapacitated. A Power of Attorney gives the named individual the right to make decisions on behalf of another.

In a Power of Attorney document, the person who will be taking over the decisions of another is called the Agent. The person for whom that person will be acting is called the Principal.

In order for a Power of Attorney to be legal, it must be shown that the Agent is of strong moral integrity and is capable legally and intellectually to make decisions for the Principal. In some cases, the Agent is compensated monitarily for their representation of the Principal, but those terms are agreed upon in a separate contract from the Power of Attorney.

And although some institutions accept a verbal agreement for Power of Attorney, most financial institutions and hospitals as well as the IRS require a written agreement between the Agent and the Principal.

Powers of Attorney are subject to what is called the “Equal Dignity” rule. Under this law, the Agent is not to be absolved from anything that is considered due process and would be observed by the Principal. For example, if the Agent is given a Power of Attorney to sign a contract for the Principal, and the contract is required by law to be notarized, the Agent must then have the contract notarized in place of the Principal. In other words, Power of Attorney does not make exception for measures otherwise required by law.

In any event, there are two distinct types of Powers of Attorney, one being “limited” and the other being “special.”

In Special Power of Attorney, the Agent is given the authority to make business and legal decisions for the Principal until he or she is notified otherwise. The Power of Attorney will give the Agent full power to represent the Principal in all relevant situations.

A Limited Power of Attorney, on the other hand, is a document specific to one situation or circumstance. For example, if the Principal is required to leave the country on a business trip, but will be closing on his house while he is away, he can assign Power of Attorney to his wife or to another individual for the closing of the house. The Power of Attorney in this case only applies to the signing of documents at the closing, and does not extend beyond that circumstance.

Anyone considering assigning Power of Attorney should be discriminating in his or her decision. Choosing an Agent who is untrustworthy or likely to capitalize on the situation for his own benefit will ultimately lead to legal issues that cannot be easily resolved.

Common Agents assigned Power of Attorney include family members, attorneys, close friends and business partners.