POWER OF ATTORNEY

TOPIC: INTRODUCTION TO

POWER OF ATTORNEY

SUBMITTED BY: Mradul Rastogi

A3221517278

BBA LL. B(H)

SECTION – E
Power of Attorney
What is a 'Power of Attorney'
A power of attorney (POA) is a legal document giving one person (the agent or attorney-in-fact)
the power to act for another person (the principal). The agent can have broad legal authority or
limited authority to make legal decisions about the principal's property, finances or medical
care. The power of attorney is frequently used in the event of a principal's illness or disability,
or when the principal can't be present to sign necessary legal documents for financial
transactions.

A person appointed as power of attorney is not necessarily an attorney. The person could just
be a trusted family member, friend or acquaintance.

BREAKING DOWN 'Power of Attorney'

A power of attorney should be considered when planning for long-term care. There are
different types of POAs that fall under either a general power of attorney or a limited power of
attorney.

A general power of attorney acts on behalf of the principal in any and all matters, as allowed by
the state. The agent under a general POA agreement may be authorized to take care of issues
such as handling bank accounts, signing checks, selling property and assets like stocks, filing
taxes, etc. A limited power of attorney gives the agent the power to act on behalf of the
principal in specific matters or events. For example, the limited POA may explicitly state that
the agent is only allowed to manage the principal's retirement accounts. A limited POA may
also be limited to a specific period of time, e.g., if the principal will be out of the country for,
say, two years.

Most power of attorney documents allow an agent to represent the principal in all property and
financial matters as long as the principal’s mental state of mind is good. If a situation occurs
where the principal becomes incapable of making decisions for him or herself, the POA
agreement would automatically end. However, someone who wants the POA to remain in
effect after the person’s health deteriorates would need to sign a durable power of attorney
(DPOA).

The durable power of attorney remains in control of certain legal, property or financial matters
specifically spelled out in the agreement, even after the principal becomes mentally
incapacitated. While a DPOA can pay medical bills on behalf of the principal, the durable agent
cannot make decisions related to the principal's health, e.g., taking the principal off life support
is not up to a DPOA. 

The principal can sign a durable power of attorney for health care, or healthcare power of
attorney(HCPA), if he wants an agent to have the power to make health-related decisions. This
document, also called a healthcare proxy, outlines the principal’s consent to give the agent POA
privileges in the event of an unfortunate medical condition. The durable POA for healthcare is
legally bound to oversee medical care decisions on behalf of the principal.

Another type of DPOA is the durable power of attorney for finances, or simply a financial power
of attorney. This document allows an agent to manage the business and financial affairs of the
principal, such as signing checks, filing tax returns, mailing and depositing Social Security checks
and managing investment accounts, in the event the latter becomes unable to understand or
make decisions. To the extent of what the agreement spells out as the agent’s responsibility,
the agent has to carry out the principal’s wishes to the best of his ability.

When the agent acts on behalf of the principal by making investment decisions through the
broker or medical decisions through the healthcare professional, both institutions would ask to
see the DPOA. Although the DPOA for both medical and financial matters can be one document,
it is good to have separate DPOA for healthcare and finances. Since the DPOA for healthcare
will have the principal's personal medical information, it would be inappropriate for the broker
to have it, and the medical professionals don’t need to know the financial status of the patient
either.

The conditions for which a durable POA may become active are set up in a document called the
springing power of attorney. The springing POA defines the kind of event or level of
incapacitation that should ensue before the DPOA springs into effect. A power of attorney can
remain dormant until a negative health occurrence activates it to a DPOA.

A power of attorney can end for a number of reasons, such as when the principal dies, the
principal revokes it, a court invalidates it, the principal divorces his/her spouse who happens to
be the agent, or the agent can no longer carry out the outlined responsibilities.

There are many good reasons to make a power of attorney, as it ensures that someone will look
after your financial affairs if you become incapacitated. You should choose a trusted family
member, a proven friend or a reputable and honest professional. Remember, however, that
signing a power of attorney that grants broad authority to an agent is very much like signing a
blank check — so make sure you choose wisely and understand the laws that apply to the
document.

Power of Attorney Form

You can buy or download a power of attorney template. If you do, be sure it is for your state, as
requirements differ. However, this document may be too important to leave to the chance that
you got the correct form and handled it properly.

A better way to start the process of establishing a power of attorney is by locating an attorney
who specializes in family law in your state. If attorney's fees are more than you can afford, legal
services offices staffed with credentialed attorneys exist in virtually every part of the United
States. Visit the Legal Services Corporation's website, which has a "Find Legal Aid" search
function. Clients who qualify will receive pro bono (cost-free) assistance.

Many states require that the signature of the principal (the person who initiates the POA)
be notarized. Some states also require that witnesses' signatures be notarized.

The following provisos apply generally, nationwide, and everyone who needs to create a POA
should be aware of them:

 There is no standard POA form for all 50 states; state law and procedures vary

 All states accept some version of the durable power of attorney

A few key powers cannot be delegated. These include the authority to:

 Make, amend or revoke a will

 Contract a marriage in most states, although a handful of states allow it

 Vote (but the guardian may request a ballot on behalf of the principal)

While the details may differ, the following rules apply coast to coast:

Put it in writing. While some regions of the country accept oral POA grants, verbal instruction is
not a reliable substitute for getting each of the powers of attorney granted to your agent
spelled out word-for-word on paper. Written clarity helps to avoid argument and confusion.

Use the proper format. Many variations of power of attorney forms exist. Some POAs are
short-lived; others are meant to last until death. Decide what powers you wish to grant and
prepare a POA specific to that desire. The POA must also satisfy the requirements of your state.
To find a form that will be accepted by a court of law in the state in which you live, perform an
internet search, check with an office-supply store or ask a local estate-planning professional to
help you. The best option is to use an attorney.
Identify the parties. The term for the person granting the POA is the "principal." The individual
who receives the power of attorney is called either the "agent" or the "attorney-in-fact." Check
whether your state requires you use specific terminology.

Detail the powers you want to delegate. A POA 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 your POA is durable. In most states, a power of attorney terminates if the
principal is incapacitated. If this happens, the only way an agent can keep his or her powers is if
the POA was written with an indication that it is "durable," a designation that makes it last for
the principal's lifetime unless the principal revokes it.

Notarize the POA. Many states require powers of attorney to be notarized. Even in states that
don't, it is potentially much easier for the agent if a notary’s seal and signature are on the
document.

Record it. Not all powers of attorney must be recorded formally by the county in order to be
legal. But recording is standard practice for many estate planners and individuals who want to
create a record that the document exists.

File it. Some states require specific kinds of POAs be filed with a court or government office
before they can be made valid. For instance, Ohio requires that any POA used to grant
grandparents guardianship over a child must be filed with the juvenile court. It also requires a
POA that transfers real estate to be recorded by the county in which the property is located.

Choosing a Power of Attorney

Like the property deed for your house or car, a POA grants immense ownership authority and
responsibility. It is literally a matter of life and death in the case of a medical POA. And you
could find yourself facing financial privation or bankruptcy if you end up with a mishandled or
abused durable POA. Therefore, you should choose your agent with the greatest of care to
ensure your wishes are carried out to the greatest extent possible.

It is critical to name a person who is both trustworthy and capable to serve as your agent. This
person will act with the same legal authority you would have, so any mistakes made by your
agent may be very difficult to correct. Even worse, depending on the extent of the powers you
grant, there may be dangerous potential for self-dealing. An agent may have access to your
bank accounts, the power to make gifts and transfer your funds, and the ability to sell your
property.
Your agent can be any competent adult, including a professional such as an attorney,
accountant or banker. But your agent may also be a family member such as a spouse, adult
child or other relative. Naming a family member as your agent saves the fees a professional
would charge, and may also keep confidential information about your finances and other
private matters “in the family."

Naming Children as Power of Attorney

Parents who create POAs very commonly choose adult children to serve as their agents.
Compared to naming one’s spouse as agent, the relative youth of the child is an advantage
when the purpose of the POA is to relieve an aging parent of the burden of managing the
details of financial and investment affairs and/or provide management for an aging parent’s
affairs should the parent become incapacitated.

In these cases, a spouse named as agent who is near the same age as the person creating the
POA may come to suffer the same debilities that led the POA’s creator to establish it, defeating
its purpose. When the child is honest, capable and respects the parent’s desires, this can be the
best choice for a POA.

When there is more than one child, parents may struggle with the decision of who to select for
the role of agent. This is not a decision to be taken lightly. Your agent named under your POA
acts with your authority, so costly financial mistakes resulting from carelessness or lack of
financial understanding may be impossible to fix. The same is true of acts that create
interfamily conflict by favoring some members over others.

Worst of all, when delivered into the wrong hands, a POA can create a veritable “license to
steal,” giving your agent access to your bank accounts and the ability to spend your money and
take many other wrongful actions.

Children have different characters, skills and circumstances, and wise selection of children as
agents, and of the powers given to them, can avert these dangers. The good news is that you
can have multiple POAs naming separate agents and customize them for each child’s skill set,
temperament and ability to act on your behalf.

Consider these three key factors when choosing which child you want to give important powers
to under a POA:

1. Trustworthiness: This is the single most important trait of any agent named under a POA.
This includes not just honesty but also reliability in performing tasks that need regular
attention, from managing an investment portfolio to paying bills, and diligence in acting
according to your wishes.
2. Abilities of each child: Specific abilities of different children may make them best suited to
take on particular roles in managing your financial affairs. You can use “limited” POAs to give
different children defined and limited powers over different aspects of your finances. These
may include:

 Managing everyday expenses of the family

 Receiving income from and paying expenses on real estate

 Controlling a financial portfolio

 Managing insurance and annuities

 Running a family’s small business

Say one child is a busy financial expert living in a distant city, while another works part time and
lives conveniently close by. You can have one POA that names the first to manage your
investment portfolio and another that names the second to manage your routine daily
expenses and pay monthly bills.

3. Multiple agents: More than one agent can be named by a POA, either with authority to act
separately or required to act jointly. Having two children separately authorized to manage
routine items can be a convenience if one becomes unavailable for some reason, while
requiring two to agree on major actions like selling a house can assure family agreement over
major decisions.

But naming multiple agents can cause problems if disputes arise between them. For instance, if
two children are required to act jointly in managing an investment account but disagree over
how to do so, it may be effectively frozen. So when choosing two children to act jointly as
agents under a POA, be sure they have not only the skills for the task but personalities to
cooperate.

Risks of Naming Children as Power of Attorney

Mistakes – and worse, acts of self-dealing – committed by your agent can be extremely costly.
This is especially so with a durable POA that gives broad control over your affairs during a time
when you are incapacitated.

You must be convinced that the agent will follow your instructions, has the ability to do so and
will pursue your wishes even over the objections of other family members if need be.
Never name a child to be your agent as a matter of “fairness,” to avoid hurt feelings or to
preserve family harmony, if you lack trust. The powers are far too important to be granted
other than on the merits of trustworthiness and ability. Beware naming a child as your agent if:

 You experience difficulty, awkwardness or resistance when explaining to the child the
duties to be taken on as your agent under the POA

 The child may not be available to perform the duties, or not be reliable in doing so due
to his/her own concerns or distractions

 The child has a history of problems with gambling or substance abuse

 The child has serious debts and/or has been irresponsible in managing his/her own
finances and affairs

 The child is engaged in intra-family conflicts that may result is using the powers received
under the POA to favor some family members over others

Be aware of the dangers of theft and self-dealing created by a POA, even when your agent is
your own child. A study of abuse committed under financial POAs found that 57% of victims
were competent, and of these, 70% lost more than half their assets.

To minimize the risk of such wrongdoing, in addition to the steps mentioned above, have your
POA require your agent to report all actions periodically to an outside party, such as the
family’s accountant or attorney. In other words, “trust but verify.” A capable attorney can draft
your POA to include these safeguards under your state’s laws.

As family circumstances change, periodically review and update the POAs you have created.
You can revoke a POA simply by writing a letter that clearly identifies it and states that you
revoke it, and delivering the letter to your former agent. (Some states require such a letter to
be notarized.) It’s a good idea to also send copies to third parties with whom the agent may
have acted on your behalf. Then create a new POA and deliver it to your new choice of agent.

A power of attorney can provide you with both convenience and protection by giving a trusted
individual the legal authority to act on your behalf and in your interests. Adult children who are
both fully trustworthy and capable of accomplishing your wishes may make the best agent
under your POA. But don’t name a person as agent simply because he or she is your child – be
sure your agent is trustworthy and capable as a first requirement, whomever you name.

Getting Your Parents' to Create a Power of Attorney

If you are the child as opposed to the parent in this situation, you face a different set of
obstacles.
Parents often are reluctant to give others power over their affairs. Moreover, POAs apply to
individuals, not couples, so the challenge is to convince each parent to create a POA. If you
have a parent who is reluctant to do so, try the following ideas to persuade them.

Warn of the dangers of not having POAs. If a parent becomes incapacitated and unable to
manage his or her own affairs without a POA in place that enables a named agent to step in and
do so, then nobody may have the legal right to do so. For instance, nobody may have the right
to take IRA distributions the parent needs for income, or to borrow funds to pay medical bills,
or to deal with the IRS concerning the parent’s taxes.

It then will be necessary to go to court to seek to be named as conservator or guardian for the
parent, a course that may prove costly and slow – and could be contested, causing family
conflicts.

Suggest customized POAs for their needs. There are many different kinds of POAs, and a person
can have more than one. While a general POA enables the agent to act with the authority of the
POA’s creator in all matters, a special POA can limit that authority to a specific subject, such as
managing an investment account, or to a limited period of time, such as while the creator of the
POA is traveling abroad. (For more, see Reasons to Designate a General Power of Attorney.)

Conventional POAs lapse when the creator becomes incapacitated, but a “durable POA”
remains in force to enable the agent to manage the creator’s affairs, and a “springing POA”
comes into effect only if and when the creator of the POA becomes incapacitated. A medical or
healthcare POA enables an agent to make medical decisions on behalf on an incapacitated
person.

Convince your parent by crafting one or more POAs to meet a parent’s specific wishes.

Start small. You can begin by suggesting a special POA to be used only to provide a convenience
that the parent will value – such as one that enables you to prepare and file the parent’s tax
return and manage the parent’s dealings with the IRS. A parent who benefits from one POA is
more likely to then become open to using others.

Ask them to act for the sake of others. Ask parents to create POAs for the sake of everyone in
the family – children and grandchildren – who may be harmed by the complications and costs
that result if a parent is incapacitated without a durable POA in place to manage the parent’s
affairs.

Build in safeguards. The creator of a POA may, and should, be concerned about the risk that
the agent will abuse the powers received under it. Insure against this by having the POA require
that the agent periodically report all actions taken to a trusted third party whom family
members agree upon – such as the family’s lawyer or accountant. Or have them name two
agents and require they agree on major transactions, such as the sale of a home.

Join them. Persons of all ages gain valuable protection from having a durable POA, as one can
become unexpectedly incapacitated at any stage of life. One way to encourage a reluctant
parent to create a durable POA is to create one for yourself and ask your parent to join you by
doing the same.

Consult trusted advisors. Trusted professional advisors, such as a lawyer, accountant and/or

doctor, can help persuade parents of the wisdom and necessity of adopting POAs.

Obtaining POAs from your parents can provide valuable benefits to both them and the entire
family. If they are reluctant to grant broad powers at once, you may still be able to convince
them to do so gradually. But don’t delay, or there may be costly consequences.

A person must be mentally competent to create a power of attorney. Once a parent loses the
capability to manage his or her own affairs it is too late, and court proceedings likely will be
necessary. (See also: When Is It Critical to Set Up a Power of Attorney?)

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