Power of Attorney (POA): Meaning, Types and How Does It Works

The Power of Attorney is a legal instrument that allows someone else to act on your behalf.

POA is fundamentally a transfer of authority, entrusting someone to act on behalf of oneself. It is an arrangement in which two people agree to mutual dependence and accountability. This blog will provide in-depth knowledge on what is power of attorney, its type, and more.    

What is the Power of Attorney?

The court grants an attorney a broad or limited authority to make decisions about the principal’s matters, such as property, medical care, finance, investments, and more. Under this agreement, the authoriser is called the principal, or grantor and the person authorised is called an agent. 

It applies when the principal is temporarily or permanently ill or disabled or when they are unable to sign the required documents. POA arrangements often empower the agent to represent the principal in all property and financial concerns as long as their mental health is stable.

When Do You Need a Power of Attorney?

After understanding what power of attorney means, you must learn the reasons why you need a power of attorney. Anyone who wishes to authorise another person to conduct certain legal activities on their behalf needs a power of attorney (or POA).

During illness: When you are unable to make decisions due to illness, injury, or mental incapacity, a Power of Attorney ensures someone can act on your behalf.

During travel or absence: If you are frequently away or planning an extended trip, a Power of Attorney allows someone to manage your affairs in your absence.

For financial management: Whether due to age, health, or personal choice, delegating financial responsibilities through a Power of Attorney can provide peace of mind and efficient management.

For elderly people: Most senior citizens appoint a Power of Attorney to make decisions on their behalf due to their old age.

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How does Power of Attorney (POA) Work?

The Power of Attorney (POA) works by giving someone else the authority to act on your behalf, which is crucial for managing legal, financial, or medical matters when you can't do it yourself.

To get started, the person creating the POA, known as the principal, contacts a family lawyer or a legal services provider to draft the document. The POA can be general, giving broad powers, or specific, limiting the agent's authority to certain actions or periods.

Once the POA is created, the principal and the agent both sign it, along with witnesses if required by state law. The document outlines the powers granted to the agent and specifies when those powers become effective.

For instance, if the principal becomes temporarily or permanently ill, disabled, or unable to sign important documents, the agent can step in and make decisions on their behalf. This could include managing finances, making medical choices, or handling property matters.

It's important for the agent to understand their responsibilities and act in the best interest of the principal. Keeping accurate records of transactions and consulting professionals when needed can help ensure everything runs smoothly.

Remember, a POA can be revoked or amended by the principal at any time as long as they are of sound mind and legally competent. Overall, a well-executed POA provides peace of mind by ensuring someone trustworthy is empowered to handle important matters when you can't. 

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Types of Powers of Attorney

Many individuals have a question – what type of attorney do I need? Here are some types of Power of Attorney to help you determine which fits your needs.

Limited or Special Power of Attorney

A general power of attorney is a legal document that allows one person (referred to as an agent) to act on behalf of another (the principal). For whatever reason, the principal may be unable to make choices on his own and might delegate this responsibility to the agent. The agent would have the right to make legal, medical, financial, and business decisions under this GPoA, which is not specific to real estate. It is irrevocable, and the principal must approve the acts.

Durable Power of Attorney

A durable power of attorney authorises an agent to manage financial and legal problems on your behalf and has specific wording that makes it effective even if you become incompetent. A durable POA is used to prepare for medical crises later in life or other scenarios in which you are no longer competent in making choices. 

Healthcare Power of Attorney 

A healthcare power of attorney is a legal document that grants someone the legal ability to make essential medical decisions for you. These choices might include treatment alternatives, medicine, surgery, end-of-life care, etc. The person named in your power of attorney to make these choices is referred to as a healthcare agent or proxy.

Financial Power of Attorney

A financial power of attorney is a legal document that authorises someone to manage your finances if you are unable to do so due to incapacity or cognitive impairment. If you are unwell or out of the country, you may want to acquire a power of attorney. It assures that if you are unable to handle your funds correctly, someone else will. Without a financial power of attorney, the court may have to appoint a conservator or guardian to handle your affairs.

Springing Power of Attorney

A springing power of attorney takes effect if you are disabled or unable to act on your behalf. Until then, it has no impact, which means you can give someone power of attorney when you need someone to make choices for you. Individuals use it as a planning tool to prepare for medical emergencies or ageing. 

Real Estate Power of Attorney

A power of attorney in real estate is a legal document that authorises another person to manage, sell, or buy property on your behalf. This "authorised agent," often known as an "attorney-in-fact," has the authority to administer your property by the terms of the power of attorney. 

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Sample of Power of Attorney

The Power of Attorney is a legal document that grants a person the authority to act on behalf of another. Here is a brief format of the POA:

Identification section: This section identifies the principal (one who is granting the authorisation) and the agent (one who is being authorised).

Authorisation section: In this section, the powers granted to the agent are specified, such as buying and selling the property, etc.

Time Frame section: This section specifies the duration throughout which the attorney will remain in effect. Some attorneys are durable, meaning they will be in effect even after the principal becomes incapacitated.

Signature section: In this section, the principal, agent, and witnesses sign the agreement contract.

Revocation and notarisation section: This section specifies the terms and conditions for revoking the agreement. Some states have specific requirements for notarizing the POA documents, those requirements are also stated in this section.

Do's and Don't Actions Under Power of Attorney 

If someone has entrusted you to act on their behalf, here are some points to remember.

DO’s

• Read the Power of Attorney to understand your powers and limitations as an attorney.
• Understand when your power of attorney becomes effective.
• Keep records of any transactions you carry out on behalf of the principal.
• Keep receipts for every purchase you make and note why you purchased them.
• Hire trusted specialists (accountants, attorneys, etc.) to assist you with the challenges that may occur while functioning as an attorney.

DON’Ts

• Do not remove funds from the principal's account.
• Do not use cash to pay for the main costs. Do not use the principal's debit or credit card for personal spending without asking the principal.
• Do not put your name in the principal's bank accounts.
• Do not put your name on the principal's property. 
• Do not mix your property and money with the principal's. Don't provide money or property to yourself or your family without the principal's agreement.
• Do not modify the beneficiary designations on bank accounts.

Conclusion

Creating a power of attorney and outlining how it will operate even if you lose your capacity to think or function guarantees that you have a strategy to manage your financial affairs and health charges if you become unable to do so. Make sure you pick someone you trust and someone who will diligently carry out their tasks for you.

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Frequently Asked Questions

1. What is POA's full form?

The full form of POA is Power of Attorney. 

2. What is the validity of power of attorney?

In India, a POA is valid while the individual is alive and expires upon death. 

3. Who can create a power of attorney?

Both the principal and the agent must be at least 18 years old and of sound mind.

4. Can I revoke or amend a power of attorney?

Yes, as the principal, you typically have the authority to withdraw a Power of Attorney at any time, as long as you are of sound mind and have the legal competence to do so.

5. Do powers of attorney expire?

Yes, it does. A power of attorney (POA) is valid until its originator dies.