WHAT IS A POWER OF ATTORNEY?
A power of attorney is the grant of legal rights and
powers by a person, the "principal," to another, the
"agent" or "attorney-in-fact." The attorney-in-fact, in
effect, stands in the shoes of the principal and acts
for him or her on financial, business or other matters.
The attorney-in-fact can do on behalf of the principal
whatever the principal may do on his own
behalf--withdraw funds from bank accounts, trade stock,
pay bills, cash checks-to the extent authorized in the
power of attorney. But this does not mean that the
attorney-in-fact can just take the principal's money and
run. The attorney-in-fact must use the principal's
finances as the principal would for the principal's
benefit. In giving someone a power of attorney, an
individual is giving the other person the right to
exercise a legal right that the individual already has.
People may not think of themselves as being powerful,
but in fact every time they spend money, enter into
contracts, sell property, cash checks, withdraw money
from a bank, decide where to live and choose what kind
of health care they want, they are exercising their
legal rights and powers. Normally, no one else can
exercise these legal rights for an individual. However,
people have the right to delegate these powers to
someone else--to allow this other person to act in their
place. Giving someone a power of attorney does not limit
an individual's own rights in any way. It simply gives
the other person the power to act when or where the
individual cannot act.
WHEN DOES POWER OF ATTORNEY TAKE EFFECT?
Normally, a power of attorney takes effect as soon as
the principal signs it. If the principal wants to keep
the power of attorney from taking effect until some
future event takes place, he or she can execute a
ďspringing" power of attorney. A springing power of
attorney takes effect only when the event described in
the instrument itself takes place. Typically, this is
the incapacity of the principal as certified by one or
more physicians. In most cases, even when the power of
attorney is immediately effective, the principal does
not intend for it to be used unless and until he or she
becomes incapacitated. The attorney-in-fact should
discuss this with the principal so that he or she knows
and can carry out the principal's wishes.
DOES A POWER OF ATTORNEY TAKE AWAY THE
Absolutely not. Only a court can take away a principal's
rights through a conservatorship or guardianship
proceeding. An attorney-in-fact simply has the power to
act along with the principal.
ARE POWERS OF ATTORNEY IRREVOCABLE?
Certainly not. A principal may revoke a power of
attorney at any time. All the principal needs to do is
send a letter to his or her attorney-in-fact telling the
attorney-in-fact that his or her appointment has been
revoked. From the moment the attorney-in-fact receives
the letter, he or she can no longer act under the power
CAN AN ATTORNEY-IN-FACT MAKE GIFTS OF THE PRINCIPAL'S
MONEY TO THE PRINCIPAL'S LOVED ONES, INCLUDING THE
This depends on the wording of the power of attorney and
on the laws of the state in question. Some state
statutes require gift-making powers to be indicated on
the document. That is, the power of attorney must
authorize the attorney-in-fact to make gifts. In those
states, the attorney-in-fact cannot act without the
specific authority to do so. A well-drafted power of
attorney will specifically give the attorney-in-fact the
right to make gifts (assuming that the principal wants
to give the principal that authority). The power of
attorney may limit the amount of the gifts or the people
to whom the attorney-in-fact may make gifts. If, on the
other hand, the document does not give the
attorney-in-fact specific authority, but it does give
him or her a general grant of power to stand in the
principalís shoes and do whatever he or she may do, the
attorney-in-fact still may be able to make gifts if the
law in the state in which the attorney-in-fact resides
allows this. Just remember that the attorney-in-fact is
acting in a fiduciary capacity and all of his or her
actions under the power of attorney must be in the
principal's best interest.
CAN THE ATTORNEY-IN-FACT BE HELD LIABLE FOR HIS OR
Yes, but only if the attorney-in-fact acts with willful
misconduct or gross negligence. If the attorney-in-fact
does his or her best and keeps the principal's interests
in mind as the basis of his or her actions, the
attorney-in-fact will not incur any liability.
WHAT IF THERE IS MORE THAN ONE ATTORNEY-IN-FACT?
In most cases, when there are multiple
attorneys-in-fact, they are appointed "severally,"
meaning that they can each act independently of one
another. Nevertheless, it is important for them to
communicate with one another to make certain that their
actions are consistent. If they disagree or take
conflicting steps, that can create a serious problem.
The only solution may be a guardianship or
conservatorship under which a court would choose one of
them (or someone else) to make the decisions.
CAN THE ATTORNEY-IN-FACT BE FIRED?
Certainly. The principal may revoke the power of
attorney at any time. All he or she needs to do is send
the principal a letter to this effect. The appointment
of a conservator or guardian does not immediately revoke
the power of attorney. But the conservator or guardian,
like the principal, has the power to revoke the power of
WHAT KIND OF RECORDS SHOULD THE ATTORNEY-IN-FACT
It is very important that the attorney-in-fact keep good
records of his or her actions under the power of
attorney; this is the best way to be able to answer any
questions that may be raised. The most important rule
for an attorney-in-fact to keep in mind is not to
commingle the funds he or she is managing with his or
her own money. The accounts should be kept separate. The
easiest way to keep records is to run all funds through
a checking account. The checks will act as receipts and
the checkbook register as a running account.
CAN THE ATTORNEY-IN-FACT BE COMPENSATED FOR HIS OR
Yes, if the principal has agreed to pay the
attorney-in-fact. In general, the attorney-in-fact is
entitled to "reasonable" compensation for his or her
services. However, in most cases, the attorney-in-fact
is a family member and does not expect to be paid. If an
attorney-in-fact would like to be paid, it is best that
he or she discuss this with the principal, agree on a
reasonable rate of payment, and put that agreement in
writing. That is the only way to avoid misunderstandings
in the future.
WHAT DOES IT MEAN TO BE A "FIDUCIARY"?
A fiduciary is a person who is held to the highest
standards of good faith, fair dealing and undivided
loyalty with respect to the principal. The
attorney-in-fact serves as the principalís fiduciary.
The fiduciary must always act in the principalís best
interest and keep his or her goals and wishes in mind in
making any discretionary decision. However, since the
fiduciary shares control with the principal, fiduciaries
do not have the same responsibility as trustees or
executors, who have total control over an estate or over
trust assets. The fiduciaryís duty covers only the level
of care he or she takes in his or her own actions as