All of us, in the world today, find ourselves in one situation or the other where we need someone else to act on our behalf, either because we are not around physically, incapacitated, or for any reason that may deny us the chance to act.
One legal tool called the Power of Attorney is such scenarios that can grant authority to a person we chose beforehand to make decisions on our behalf regarding our financial, medical and legal affairs. In this blog, we will closely into the Power of Attorney, its meaning, types, significance and the risks associated with this legal tool.
What is the Power of Attorney Document?
A Power of Attorney is a legal document by which one person (the principal) grants power and authority to another person, called the agent (attorney in-fact) to act on his/her behalf.
A Power of Attorney can be specific, meaning that it would grant only one person power to represent the principal over a particular matter, or it may generally cover the majority of a principal’s affairs regarding both financial and legal affairs. A person may not be in a position to take care of his or her affairs because of illness, travel, or even old age, then in such cases, a Power of Attorney certificate becomes indispensable.
This legal tool can be handy for almost any kind of use. Some of the uses might include managing the bank account; selling property and signing documents; making medical decisions when a person cannot make those decisions himself or herself.
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Purpose/Uses of a Power of Attorney Document
A power of attorney is an important tool which can be used to serve many purposes. Some of the important scenarios in which they can be used are discussed below;
- Financial management – In case one is unable to handle his or her finances, a Power of Attorney (PoA) transfers the power to manage one’s bank accounts, and investments, among other assets.
- Property Management – Your agent can buy, sell, as well as sign any legal papers required to buy or sell the property or look after your property if you are absent or unable to do so.
- Healthcare Decisions – A healthcare PoA gives an agent the power to make medical decisions on your behalf should the need arise and you cannot make them for yourself, either because you are incapacitated or unconscious.
- Business Management – The power to make business decisions or enter contracts on behalf of the entrepreneur may be passed on to an agent, especially in the absence of the entrepreneur.
- Tax Filing and Compliance – Agents are likely to attend to tax matters, including filing tax returns, responding to notices forwarded by the Income Tax Department and compliance with other government regulations.
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What are the Legal Requirements for a Power of Attorney?
The individuals involved in Power of Attorney need to meet certain legal requirements for the document to hold its value in the Indian context. In India, it is covered by the provisions of the Power of Attorney Act of 1882 and by certain provisions under the Indian Contract Act of 1872. A PoA needs to satisfy the following conditions to be valid in India.
- Legal Competence – There must be legal competence on both sides of the PoA-creating process. This means that the principal, who grants the power, and the agent, who receives the power, are mentally competent and of full age, that is above 18 years.
- Clear Intention – The principal intends to grant power, and this intention should be clearly expressed. It should be put in writing in the document
- Signature and Attestation – It shall carry the signature of the principal. For certain types of power of attorney that are financially or property-related, there could also be a need to get PoA notarized or registered at the sub-registrar’s office.
- Revocable – A PoA can normally be revoked by the principal at any time when they are capable of exercising their will. However, an irrevocable PoA can sometimes be granted in certain situations, usually if they are business-related or have to do with property.
- Specific or General – The Power of Attorney should mention the nature and scope of the powers granted. It may be a General PoA, granting immense authority or a Special PoA, limited only to specific tasks.
Types of Power of Attorney
There are various types of Power of Attorney, each suited to different situations and needs. Understanding the different types of PoA is important to understand the kind of power one will be handing out to their “agent” of PoA. Here are the main categories;
General Power of Attorney (GPA)
A General Power of Attorney grants the agent very comprehensive powers to act on behalf of the principal. These kinds of powers cover almost every aspect of the personal, financial, and legal affairs of the principal unless those are prohibited from being covered. This type of PoA is very convenient to use when the principal intends to delegate wide-ranging authority for quite a long time.
The General Power of Attorney provides the agent with powers to operate bank accounts, sign contracts, buy or sell property, file tax returns, etc. But the risk here is, in granting such wide-ranging powers, it could almost certainly be misused if the agent acted dishonestly.
Special Power of Attorney (SPA)
A Special Power of Attorney has a very narrow scope. It grants the agent the authority to perform a certain act or set of acts on behalf of the principal. The moment that act is accomplished, the PoA becomes void.
It may need to be used under the following circumstances;
- The sale of a given piece of property
- The execution of a particular business contract
- The completion of a particular financial transaction
This type of PoA is safer for the principal because the agent’s authority to act on behalf of the principal is limited to specific activities.
Durable Power of Attorney (DPA)
A durable power of attorney remains effective even if the principal gets incapacitated or otherwise unable to act because of health issues. It is one of the most commonly used forms of planning for healthcare and end-of-life decisions.
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Healthcare Power of Attorney
Healthcare PoA is a special form of Durable Power of Attorney; it is also known as the healthcare proxy. This POA gives the agent the right to make decisions about the medical condition and other health-related matters of the principal when the principal is unable to communicate, or otherwise incapacitated.
A Healthcare PoA can be used under the following circumstances;
- When making medical treatment and surgery decisions
- Selecting nursing homes or long-term care services
- Making end-of-life decisions, like whether to go on life support
Springing Power of Attorney
A Springing Power of Attorney starts operating only when an event or condition takes place, typically the incapacity of the principal. A springing POA specifies the type of event or the extent of incapacitation that must occur before this PoA springs into operation. For instance, an individual may draw a Springing PoA to be utilised and activated only when the person seriously becomes ill or injured from an accident.
The springing power of attorney needs to be very carefully worded to avoid confusion regarding precisely when – and if- the triggering event has occurred.
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How to Set Up a Power of Attorney?
Creating a Power of Attorney document is a pretty straightforward procedure, but one has to set it up as per the legal requirements to ensure that it can be executed legally. Here are the general steps that need to be followed for creating a power of attorney;
- Choose the Right Agent – The most important decision you will be making is choosing a worthy individual who can exercise your wishes as your agent. Make sure that he or she has a reasonable history of taking care of commitments and if possible find someone who will make decisions in your best interest.
- Prepare the PoA Document – You can prepare the Power of Attorney document either through a lawyer or from an easily available template on the internet. It should ideally specify the powers which you want to confer, general or specific.
- Specify All the Needed Information – This document has to indicate the names, addresses, and other contacts with both the principal and the agent. There have to be details that are outlined on the scope of the powers, the duration of the PoA, and whether it is revocable or irrevocable.
- Sign and Notarize the Document – Once the document is prepared, the principal needs to get it notarized in the presence of the notary public. Additionally, according to some state laws and the nature of the PoA, it may require attestation from two witnesses as well.
- Register the PoA (if required) – If the Power of Attorney certificate is related to immovable property, then it shall be registered at the local sub-registrar’s office. There is a possibility that the principal and the agent may have to present themselves in front of some officer to get it registered.
- Distribute Copies – Give copies of the PoA to third parties, for example to your banker, doctors, or business associates. Keep the original in a safe place and both you and your agent should be able to access it.
Risks Associated with Power of Attorney
A Power of Attorney is a useful legal tool to help the principal in many scenarios, however, it comes with certain risks which can prove detrimental to the principal. Certain risks need to be considered before setting up a PoA:
- Abuse of Power – The main risk is that the agent may abuse the powers given to him, acting for his own interest and not for that of the principal. This is most dangerous with the General Power of Attorney where the agent has wide discretion.
- Loss of Control – With Power of Attorney, you let go of control to the areas specified in the document. The person designated to exercise your Power of Attorney may, upon his or her whim, make some bad decisions or do something illegally, leading to financial or legal damage.
- Misunderstandings – Even if the agent is acting in good faith, misunderstandings can still occur as to what powers are granted or as to how they should be exercised. Thus, clear communication and well-drafted documents help mitigate this risk.
- Irrevocability Issues – An irrevocable Power of Attorney, particularly in property or business transactions, will limit the principal’s right to withdraw his powers if there is a deteriorating relationship with the agent. This is risky and it will have to be weighed in advance.
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Conclusion
Power of Attorney is a powerful and versatile legal tool that provides an effective solution when people cannot manage their affairs. It refers to the fact that a trusted individual may be authorized to act on your behalf for any financial, medical, or property-related matters that are very critical.
However, a lot of care has to be taken in selecting the right person to act as an agent, understanding the different forms of PoA, and knowing the risks that may crop up in its execution, abuse, and other incidents.
A Power of Attorney can prove very useful protection if properly executed and well-regulated in both expected and unforeseen situations, providing peace of mind and legal security. Proper precautions and knowledge of how the PoA works can be one of the best ways to protect financial, legal, and personal interests in all scenarios.
Frequently Asked Questions
- Can the family refuse to accept power of attorney?
Family members are allowed to contest a Power of Attorney if they have reasons to believe that the papers were signed when the principal was incapacitated or unfit to make such decisions, or if they believe the papers were signed under external pressure or influence.
- Who can be appointed as an agent in a Power of Attorney?
The Principal can appoint anybody as an agent as long as they are mentally competent. However, it is advised to have a trusted member of the family, close friends or someone you know will make decisions in your best interest as the agent.
- Is it possible to have multiple Power of Attorney?
Yes, it is possible and even advisable to have multiple Power of Attorney. In case, the agent falls sick or meets an accident, it is best to have a backup PoA to act in such scenarios.
- Can an attorney-in-fact buy or sell properties on behalf of the Principal?
Yes, if the Power of Attorney specifically grants the agent the power to deal with properties and financial matters of the principal then they are eligible to buy and sell properties.