Your Power of Attorney Explained
A power of attorney is a legal document that an individual signs to give another individual, presumably a spouse, partner, family member or trusted individual, the authority or ‘power’ to act on their behalf. A power of attorney is very useful when the person giving the power, who is also called a principal, is for some reason unable to act for their own behalf. A common situation where a power of attorney or “POA” can be extremely valuable occurs when someone experiences a long-term hospitalized and needs help managing their finances.
The principal gives this authority to an individual who is called the agent. The principal and the agent are the two key players in a POA. This document is very broad and deals with fifteen types of actions.
Description of Powers
Real Property
In this provision the principal is giving the agent power to buy property, sell property, borrow money, and give a mortgage for the property, rent the property, and do anything with the real property that the principal could do.
Tangible Personal Property
Tangible personal property are the things in life that you can literally pick up and move around. They could be household furnishings, automobiles, an aircraft, boats, jewelry, artwork. Personal property also includes cash that you may have on hand. It could even include gold coins or other types of collectibles like stamps.
This provision gives the agent the authority to sell personal property, buy additional personal property, pawn it off, borrow money and pledge the personal property as security for the loan, as you would when buying a car.
Stocks, Bonds, Commodities, and Options
Most people know what stocks and bonds are. A lot of people own them in their 401(k), or they may have started their own brokerage account online.
This provision gives the agent the authority to buy stocks, sell stocks, exchange them, borrow money against them, and vote the stock.
The provision also deals with commodities and options, something that very few people have as they can be extremely risky investment. The provision gives the agent similar powers to manage these investments as it has with stocks and bonds.
Bank Accounts
This provision gives your agent the authority to sign checks, make deposits, open up new accounts, close accounts and enter into a safe deposit agreement to store valuables at the bank.
Operating a Business
This provision applies if you own a business. It gives gives your agent the ability to manage your business, buy it, sell it, file lawsuits on behalf of the business, sell or liquidate a part of the business, and pay the businesses' taxes.
Insurance and Annuities
This provision allows your agent to borrow money against your life insurance policies, pay premiums on the policies, and purchase additional insurance contracts. Purchasing a new life insurance policy would likely require you to take a medical exam before the contract would be issued. If you have annuities, it would allow the agent to start the annuity payments for you, along with any other number of similar acts.
Digital Assets
Digital assets are relatively new on the legal scene, and it's become more and more important to property plan for this type of asset.
This provision gives your agent the authority to hold and control your electronic assets. These could include bank accounts, websites where you have albums, books and other items, your PayPal, Amazon account, Etsy and any accounts where you're conducting e-business. The provision gives your agent the authority to transact business for you, electronically.
Estates, Trusts, and Other Interests
Not very many people deal with this particular provision. However, suppose a family member left you a gift in their will and that gift from the will needed to be signed for. Your agent could sign on your behalf.
On the flip side, maybe you don't like the fact that you were left out of a family member’s will and you want to file a lawsuit to contest the will. Your agent could do that for you as well. Again, these are very rare instances.
Filing Lawsuits
The provision allows your agent to file lawsuits on your behalf, or, if you get sued, to defend those lawsuits.
Personal and Family Maintenance
Generally, this provision authorizes your agent to do things for you to maintain your customary standard of living.
It also gives your agents the authority to pay for your necessary health care and travel expenses, take care of your automobiles or other transportations, maintain your credit and debit card accounts.
Governmental Programs or Civil or Military Service
This provision gives your agent the authority to deal with the Veterans Administration or other governmental authorities that you have dealings with, assuming that you are a government employee.
Retirement Plans
This provision could cover your 401(k), your IRA, or any retirement plans out there. Your agent will have the authority to establish a new plan in your name, roll over a plan, and generally handle all of your retirement assets.
Taxes
This provision gives your agent the authority to file and pay your taxes. These include your federal income tax and your state income tax.
These are the powers a principal grants their agent in the power of attorney.
Technical Features
Limitation on Agent’s Authority
This provision of the document deals with the limitations on the agent's authority and specifically addresses the federal gift tax. The limitation is designed to keep your agent from being deemed the owner of your assets for federal gift tax and state tax purposes.
Effective Date
This section defines is the effective date. This document takes effect immediately upon your signing the document.
Reliance on this Power of Attorney
This section gives any person that relies on the power of attorney the authority to rely on it without any liability.
Appointment of Successor Agent
This section is the appointment of your successor agent. A lot of people like to appoint a backup agent on their power of attorney in case their primary person becomes disqualified from serving.
Durable Power of Attorney
This section is a statement that this is a durable power of attorney.
What is a durable power of attorney?
Decades ago, under the old common law dealing with principals and agents, an agent could basically be your alter ego. That person could do anything that you could do, but there was a limitation there.
Suppose you became incompetent and were legally judged unable to take care of your own affairs. Before the durable power of attorney provision, this would render your agent incompetent as well.
States now have passed the Durable Power of Attorney act so that, should you become incompetent and unable to take care of yourself legally, your agent may continue to take care of your affairs.
Revocation of Prior Powers of Attorney
This section deals with the revocation of any power of attorney that you may have signed in the past. What this does is automatically revoke any prior powers of attorney you may have given so that there's no confusion as to who can act on your behalf.
Right to Revoke or Amend Power of Attorney
This section deals with the revocation of this document and that, as the signer of this document, you can revoke this power of attorney at any time. You will need to revoke this power in writing, however, since any existing power of attorney is also in writing.
Laws of Your State of Residence Apply
The last section state that if there are any questions about the power of attorney, they will be determined under the laws of the state in which you reside.
Signature Pages
Principal’s Signature Page
The principal, the person creating the power of attorney, must sign the signature page in the presence of a notary public and have the notary sign the document as well.
Agent’s Signature Page
The agent, the person accepting the power of attorney, must sign the Acceptance and Acknowledgment by Agent signature page in the presence of a notary public and have the notary sign the document as well.