Van Haaften & Farrar

What is a “power of attorney?”

A power of attorney is a document whereby a person — the “principal” — appoints another — referred to as an “attorney in fact” — to act on the principal’s behalf in making certain decisions that are personal to the principal and defined in the power of attorney document. The power of attorney is generally used by the attorney in fact to act on behalf of the principal’s behalf in the event the principal cannot act for herself, such as when the principal is incapacitated or when the principal is otherwise unavailable to take the action herself. Powers of attorney are often used to give an attorney in fact the power to carry out financial or contractual transactions, such as signing checks, paying bills, executing contracts, and so on. The attorney in fact has a fiduciary duty to the principal, which means that the attorney in fact must act in the best interest of the principal. If the attorney in fact uses his authority to act in a self-serving or reckless manner, he may be held liable for his wrongful actions.

A power of attorney is regularly executed as a part of a client’s estate plan. Having a power of attorney in effect can save the client a considerable amount of money and can also help her loved ones avoid the difficult and time-consuming process of court-appointment of a guardian for the client. If the client suffers from incapacity without a power of attorney in place, the client effectively leaves no authorized representative to act on her behalf. This means that there is no one permitted to carry out the very basic and unavoidable day-to-day financial transactions that the client once carried out on her own— paying the monthly utility bill, withdrawing from a savings account to purchase groceries, endorsing checks, etc.

Because the client is now incapacitated, she lacks the ability to execute a power of attorney. In other words, it is too late for a power of attorney. In order for a loved one to act on behalf of the client, the law usually requires the appointment of a guardian by a court. The process for appointment of a guardian generally requires an attorney, paperwork, a hearing and fees and costs that significantly exceed what the client could have paid for a relatively simple power of attorney document. If there is any dispute among loved ones about the guardianship, the burden becomes even greater. Furthermore, the person to serve as guardian is chosen by a court and not by the client herself.

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Tags: estate planning, guardianships, power of attorney