This article is written by Eshita Pagariya, pursuing Diploma in Advanced Contract Drafting, Negotiation, and Dispute Resolution from LawSikho. The article has been edited by Aatima Bhatia(Associate, LawSikho) and Smriti Katiyar (Associate, LawSikho).

Introduction

The power of attorney (POA) or letter of attorney is a document that enables one person to represent another in private matters, business contracts, or some other matter on another’s behalf. The individual who authorizes the action is referred to as the principal.  Agents, attorneys, or in certain common law jurisdictions, attorneys-in-fact have authority to act. The term “power” originally referred to an instrument that was signed under seal, whereas the term “letter” referred to a document that was signed by two individuals. However today a power of attorney does not need to be signed under seal. While some jurisdictions require that powers of attorney be notarized or witnessed, others will enforce them if they are signed by the grantor.

In the case of a principal’s temporary or permanent illness or incapacity, or when the principal is unable to sign important documents, power of attorney is usually utilised. A power of attorney can be terminated for a variety of reasons, including the principal’s revocation or death, the court’s invalidation of the agreement, or the agent’s inability to carry out the stated obligations. In the case of a married couple, if the principal and agent divorce, the permission may be nullified.

A power of attorney instrument is a critical component of estate preparation, but it is also one of the most misunderstood. As business and commerce transactions progress, it is frequently convenient or even important to have someone else act on your behalf. Many individuals mix up a power of attorney (POA) with a will (Probate), even though both papers are distinct and serve very different purposes. A will takes effect on the day a person dies. A POA is valid for a person’s lifetime and expires when he dies. So you truly need both a POA and a will since they complement one other and do not overlap.

Kinds of power of attorney

General power of attorney

A general power of attorney is one by which a principal appoints the agent to do on his behalf certain acts in general. The word ‘general’ indicates that the power is general in terms of the subject matter and not general in relation to powers in relation to a subject matter. During the drafting of an instrument, if the subject matter is not general, but only pertains to something specific or specifically outlined by the principal, then it does not constitute a general power of attorney. Otherwise it is known as limited powers of attorney. Attorneys or agents are granted wide-ranging powers in general powers of attorney, which authorize them to do all acts associated with a particular business or job.

Special power of attorney

Special powers of attorney authorize a specific act or acts to be accomplished by someone on behalf of the principal. This type of power of attorney empowers the agent to act in the name of the principal on an individual basis or for a specific transaction.

A durable power of attorney

When a power of attorney specifically states otherwise, the agent’s powers end if the principal becomes mentally incapacitated. Powers of attorney, however, can be intended to remain effective even after the principal becomes incapacitated. This is called a durable power of attorney.

Rights of power of attorney

1. The attorney may, however, carry out all of the authorised activities, but only in a certain manner, provided the power of attorney so specified.
2. The right to take legal action on the Principal’s behalf, and must sign all necessary legal documents.
3. Receiving income on behalf of the Principal. 
4. Decision-making authority in matters of personal, business, or investment affairs.
5. The authority to create bank accounts, make cheques, and sell property on behalf of the Principal.
6. A solicitor should always be consulted if there is any uncertainty about the power of attorney’s language.
7. The attorney must also operate in the principal’s best interests.
8. An agent may make decisions on behalf of the principal, such as paying the principal’s rent or mortgage, hiring workers to maintain the principal’s home, or hiring an attorney to represent the principal. 
9. In a health care power of attorney instrument, an agent has a responsibility to behave responsibly in regards to their principal’s health care desires. Even if the parties have opposing moral positions, the agent must operate in accordance with the principal’s intentions.
10. The principal can allow an agent to handle a variety of activities through one or more powers of attorney, including entering into contracts, dealing with real and personal property, administering the principal’s financial and tax affairs, and arranging for the principal’s housing and health care.
11. All financial transactions must be accurately recorded in the power of attorney’s books and records. The word accurately recorded implies that not just pertinent receipts, but also a complete transactional history of all transactions performed by the power of attorney, must be kept.
12. Expenditures are made from the person’s property for the support, education, and care of legal dependents.
13. Right to handle, compromise, resolve and modify all real estate-related issues.
14. Right to Lease, collecting rentals, granting, bargaining, selling, or borrowing and mortgage.
15. Right to sell all of your stocks, bonds, and other investments.
16. The attorney has the authority to sign all tax returns, insurance papers, and other documents before filing them.
17. Right to make, sign, execute, and deliver any contract, agreement, or document; to enter into contracts and to perform any contract, agreement, writing, or item; to create, sign, execute, and deliver any contract, agreement; to acknowledge any contract, agreement.
18. Right to make decisions about the donor’s or his minor children’s health care.

Limitation of power of attorney

1. An attorney must not go beyond the scope of the power of attorney. If the attorney goes above his or her powers, he or she may be held responsible for any harm the donor or others incur.
2. The attorney will be responsible to the donor if he breaches any requirement unless he behaved reasonably.
3. At any moment, the POA cannot delegate authority to another Agent.
4. After the Principal’s death, the POA is no longer able to make legal or financial decisions, and the Executor of the Estate assumes control. 
5. Following the Principal’s death, the POA is unable to disburse inheritances or transfer assets.
6. The POA has no authority to alter or nullify the Principal’s  Will or other Estate Planning papers.
7. The POA cannot alter or breach the provisions of the nomination paperwork; otherwise, they risk being held liable for fraud or carelessness.
8. The POA cannot act in any way that is not in the best interests of the Principal.
9. The POA will not be able to make decisions until the agreement is in force; conditions will be imposed with the approval of the Agent and Principal.
10. Unless the Principal is in excellent physical and mental health, the POA cannot be lawfully chosen.
11. The POA is not allowed to use the Principal’s assets or money as if they were their own.
12. The POA cannot be paid more than the amount stipulated in the POA agreement.
13. In addition, the agent must avoid any potential conflicts of interest. Unless the principal and the agent mutually hold the property before writing the power of attorney, the agent cannot commingle or merge their property with the principal’s property.

Conclusion

When the individual cannot be present to sign their paperwork, the principal generally appoints the power of attorney. It is a critical decision, and the individual must proceed with caution. The attorney holder literally steps into the shoes of the principal to execute all acts on his behalf, with the exception of the authority to plead unless authorised by the court and to depose regarding facts that the principal has exclusive knowledge of. The principal must use extreme caution when assigning such authority, otherwise, the outcome will be counterproductive. The authority is limited to acting solely on certain topics or on a specific type of transaction, or to carrying out a specific legal transaction for the Principal. The agent’s power of attorney ends after the transaction is completed. If the power agent commits deception, this does not bind the principal. He cannot be sued or otherwise be held liable for the agent’s deception. If the authority does not empower the agent to do business except with restrictions, any act done by him in excess of such power will not bind the principal. A fortiori, an agent cannot bind the principal to a greater degree than he is authorised to do under the power of attorney. It is advisable to select a trustworthy agent and give them the necessary legal authority when signing the Power of Attorney. It is also given to a valued family member in the same way. It is also possible to give the POA to more than one person. To avoid any future repercussions, one must also adhere to the proper structure and provide all relevant data.

References

1. https://www.latestlaws.com/library/legal-documents/power-attorney-2
2. https://www.signnow.com/ask/how-to-sign-as-power-of-attorney
3. https://corporatefinanceinstitute.com/resources/knowledge/other/power-of-attorney/
4. https://taxguru.in/corporate-law/understand-power-attorney-need-dangerous-side-restriction.html
5. https://trustandwill.com/learn/power-of-attorney-rights-and-limitations
6. https://info.legalzoom.com/article/what-are-duties-power-attorney

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