Explanation of Power of Attorney

By Lisa Magloff

A power of attorney is a legal document that gives one person the power to make certain decisions for another person. The person who signs the document is called the principal. The person authorized to make decisions on behalf of the principal is called the agent or the attorney-in-fact. The agent does not need to be an lawyer. There are several different types of power of attorney, and each gives the agent authority to make different types of decisions.

Function

People make out a power of attorney for different reasons. Some people use a power of attorney to allow an agent to handle their financial affairs or to run a business on their behalf when they are busy or away for a period of time. Other power of attorney documents only take effect if the principal becomes mentally or physically incapacitated. In this case, the agent might make medical decisions for the principal, look after their financial affairs or both.

General and Limited Powers

A general power of attorney allows the agent to conduct a wide variety of transactions for the principal. This type of power of attorney is used to allow the agent to run the principal's financial and business affairs. The exact powers given to the agent are listed in the power of attorney document. A limited power of attorney gives the agent the power to preform only a specific act, such as completing a real estate purchase or making a particular investment. General and limited powers of attorney can both be written so that they come into effect immediately or only come into effect if a particular event occurs. For example, the power may come into effect only on a particular date or only if the principal becomes incapacitated.

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Durable Power

Most powers of attorney end automatically if the principal become incapacitated. If a power of attorney contains a clause stating the power of attorney does not end when the principal becomes incapacitated, then it is called a durable power of attorney. This durable power of attorney can be written to allow the agent to make medical decisions, financial decisions or both. This type of power of attorney contains a list of the powers given to the agent and when each power should take effect. For example, the powers may take effect immediately or only if the principal becomes incapacitated.

Revocation

All powers of attorney automatically end on the death of the principal. The agent cannot act as the principal's executor unless there is a separate legal document naming her as the executor. In addition, the principal can revoke the power of attorney at any time and for any reason. A court can also invalidate a power of attorney, particularly if the principal was not of sound mind when they signed the document or if the agent has committed fraud. In many states, including California and Texas, if the principal's spouse is acting as the agent and the two get a divorce, the power of attorney is automatically revoked.

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Example of a Power of Attorney Form
 

References

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