Power of Attorney (POA)

A power of attorney (POA) is a legal document that states an authority of one person to act on behalf of the other one under the specified conditions. A person receiving the power is called an agent or attorney-in-fact. A person entrusting the power is called a principal. The given authority can be applied to such areas of decision-making as finance, property, medical care, etc. This authority can be extended to all of these areas or limited to some of them in particular. 

Generally, a power of attorney is applied when the principal is out of reach (e.g. the person is on a business trip) or disabled to do something (e.g. the person is on sick leave).

General information about a Power of Attorney (POA)

A power of attorney guarantees people that someone will take care of their work, finances, or health in case of need. In order to make one the principal has to find a reliable and qualified person whom he delegates his authority to. The choice has to be carefully considered because this document gives the attorney-in-fact the power to act on the principal’s behalf. The agent doesn’t have to be an attorney. It can be a colleague, family member, or a friend.

A power of attorney can be established online or offline with a witness of a lawyer who notarizes the documents. The principal and the agent must sign these documents too. Otherwise the power of attorney won’t be valid. The documents can come into force instantly after signing them or the activation can be postponed till a certain date in the future. 

There are several cases when a power of attorney can be voided:

• The authorized person revokes this document.
• The document has the end date.
• The principal becomes mentally incapacitated (here, it’s important to note, that if the parties sign a durable power of attorney, the agent’s power remains active despite the principal’s incapacity).
• The power of attorney is obtained between a married couple who get divorced.
• In case of the principal's death.
• The court annuls the document.

In order to revoke a POA, the principal has to prepare the letter stating his decision and send it to the people involved in this matter. Some countries and regions require notarization of this letter.

Also, the power of attorney can be periodically reviewed and corrected by the principal.

Classification of Powers of Attorneys

There are different types of powers of attorneys based on different factors of comparison. The number of distinguished types varies from one reference source to another. For example, we can differentiate powers of attorneys by the limit of the given authority – limited and general POAs. Another factor divides POAs by the spheres of the given authority – financial and medical POAs. Some information sources list all of these types and some combine them and create subtypes. Let’s consider one of these classifications further on.

There are suggested two main types of powers of attorneys – financial and health care POAs. Financial type consists of three subtypes – limited POA, general POA, and durable POA (DPOA).

A health care power of attorney (HCPOA) or health care proxy is a legal document that gives the agent an authority to make decisions related to the principal’s health. This document gets activated when the principal due to some unfortunate circumstances becomes unable to make his own decisions and take care of himself.

A financial power of attorney works almost the same way as the health care proxy, but towards the principal’s financial issues. The attorney-in-fact becomes responsible for managing business processes, signing different checks and documents, controlling bank transactions, and so on.

According to this classification the financial POA has three subtypes:

1. A general POA means that the agent gets a broad authority limited only by the contract provisions and the laws of the country. The agent is even allowed to sell property on the principal’s behalf.
2. A limited POA judged by the title, has certain restrictions for the given authority. For example, the agent is authorized to make decisions on tax returns. Other decisions can’t be made without the principal's participation. Also, this type of POAs is often limited in time.
3. A durable POA (DPOA) remains in effect even in cases of the principal’s mental incapacity. However, this type of POAs extends only on financial issues and does not apply to the questions of the principal’s health. Note that if the principal becomes mentally incapacitated before establishing any power of attorney, the authority can be delegated only through the court.

A durable power of attorney (DPOA) has an additional document called a “springing” POA, which defines the conditions of the DPOA activation. Consequently, it has to be precisely  prepared in order to avoid misinterpretations. 

Power of Attorney requirements

If you need to prepare a power of attorney as a person entrusting your authority, you should do research on how to form this type of legal document and carefully study all the restrictions.

You can find some templates for creating a POA on the internet. However, there is no standardized form that you can use.The stipulated conditions for the form of a POA vary in different countries, regions, and states. Thus, working with the pattern may be tricky. The best option is to request assistance from an attorney.

Despite the possible variations of requirements there are some common rules applicable to almost any type of POAs:

• Written form. Although a POA can be formulated orally, this form has obvious side effects such as arguments and misinterpretations. Meanwhile, the written document strictly organizes the information which is extremely important in such cases.
• Relevant form. As stated before there are a lot of different forms of POAs. You have to find the one suitable for your needs. Define the type of needed POA and its duration. Then check the laws of the country related to this document.
• Appropriate terms. Usually, the POA states that the principal gives an authority to the agent or attorney-in-fact. However, the terms can vary in different countries.
• Range of the delegated powers. It’s important to write down all of the aspects of the delegated powers as detailed as possible. That helps to determine the range of the agent's authority and possible decisions that he can or cannot make. This rule remains relevant even for obtaining a general POA, where the agent’s authority is almost unlimited. Note that there are powers that can’t be delegated:

1. The power to make, revoke or correct a will.
2. The power to contract a marriage.
3. The power to vote.

• Duration of action. If needed, define the period of the POA duration. Remember that any POA aborts when the principal becomes mentally incompetent. There’s only one exception – if the document states the possibility of a durable POA activation.
• Notarization. Not every country, state or region requires to notarize a POA, but it still can be useful as an extra precaution for the parties. Additionally, in some cases it might be important to record the existence of the POA and to file it in court.

You can consult on all of these requirements with an attorney. These consultations don't come for free. In case you can’t afford such payments, search for pro bono legal services in your country.

Main factors for choosing the agent

Basically, there are two main factors for choosing the agent:

Reliability. This personality trait includes not only the reliability itself, but the level of conscientiousness, assiduity, and punctuality. Also, the chosen person has to be able to follow the principal’s instructions.

Skills, or abilities. The agent has to be qualified enough to take the principal’s authority. In addition, this factor includes the agent’s soft skills such as an ability to communicate efficiently and work in a team.

As an additional factor you can consider the agent’s current residence and occupation. If the supposed agent lives in another city and has a full-time job, it may be reasonable to consider another person to take your duties. 

Associated risks

The significance of the power of attorney shouldn’t be underestimated. With the help of this document, the agent gets permission to act on another person’s behalf in questions of medical care and/or finances. It’s an enormous responsibility that has to be given to a professional and trustworthy person. If these powers are handled incorrectly, the principal can get harmed by someone’s irresponsible actions. As an example, the agent can lead the principal’s company to debts and even cause bankruptcy. Also, there is a great threat of self-dealing.

The agent can be the principal’s friend or family member. In this case the chosen person is highly likely to be trustworthy, but might not be properly prepared to be left in charge. Some mistakes can be irreversible or hardly fixed.

The principal can hire a professional to be the agent. It can be an attorney or a banker. Opposed to a family member, this person can be qualified enough to take the responsibility, but might have less credibility. Also, the specialist demands an extra payment for his services.

As a precautionary measure the principal can require the agent to make periodic reports on his actions. These reports can be assessed by an outside party.

Family member as the agent

All of the aforementioned risks applied to your family members as well. It is expected that a relative is a more trustworthy person than a hired professional, but this suggestion might be wrong. The final decision on choosing the agent has to be made after careful consideration.

If you decide to choose a family member instead of a hired professional, you can name your adult child as your agent. It’s a common practice in some countries. This choice can be especially useful for aging parents who decide to delegate their authority of making financial or health related decisions. Naming a spouse as the agent might not solve the problem considering that often partners are approximately the same age. Consequently, they can come across the same difficulties.

In case you have more than one child of legal age, you can choose one of them to be your agent or to establish multiple powers of attorneys. Before making a final decision, assess skills, personality traits, and credibility of your children. This choice has to be taken seriously regardless of your affections.

In order to avoid conflicts between family members you can divide your authority between all of your children by establishing a few limited POAs for each of them. Every child gets responsibility for specified areas of decision-making. The principal can point out if they can make decisions separately or jointly. For example, children can make some regular actions separately, but have to work in cooperation on some major issues like selling a house.

Though it might be useful for a family at some moment, multiple POAs aren’t recommended by professionals because of a high risk of misinterpretations and conflicts in long term prospects.