What is a power of attorney, and why are the people named in powers of attorney usually not even lawyers?
Generally, a power of attorney allows one person to empower another person to act for the first person. Each power of attorney involves a principal, who grants to someone else the ability to act for him or her. There is also an agent, called the “attorney in fact,” who acts for (is agent for) the principal.
Attorneys at law have traditionally represented people in court. Attorneys in fact represent people in life.
A power of attorney can be written to take effect immediately. Alternatively, a power of attorney can give the agent the power to act for the principal only upon some future date or event happening, such as if the principal becomes mentally unable to make his or her own decisions.
If a power of attorney is written to take effect in the future, that power of attorney should provide a clear and reliable way to determine if the event that will trigger the agent’s empowerment has occurred. For example, if a power of attorney is effective only when the principal is mentally unable to make decisions, it can be problematic if the document does not say who will decide the principal’s mental competence.
Principals often want to empower their agents with as much power as possible, in case that authority is someday necessary. Understandably then, issues can arise if the agent acts inappropriately or dishonestly. This problem gets even bigger if the principal becomes incapacitated or mentally incompetent because the principal cannot then revoke or amend the power of attorney.
The law provides some protections to try to limit agents’ misconduct. First, unless the power of attorney states otherwise, the agent can only make gifts to any other person of less than a certain amount per year (in 2016, the limit is $14,000). Additionally, an agent must only make gifts that are consistent with the principal’s estate plan and what the agent believes, in good faith, are the principal’s wishes.
Notably, there are a specifically defined, limited number of people who are legally allowed to review the agent’s conduct if the principal is incapacitated. Thus, an agent named in a power of attorney should always be a very reliable, honest and trustworthy person.
Most documents granting powers can effectively be powers of attorney. However, Ohio has a basic form (that can be modified) that attempts to make powers of attorney at least somewhat uniform. Ideally, that consistency makes it easier for other people (who are expected to rely upon the power of attorney) to feel confident that the agent’s authority is legitimate.
Powers of attorney can be revoked or amended any time when the principal is mentally competent to do so, and they always terminate when the principal dies. Also, a spouse is an agent under a power of attorney, that power of attorney automatically terminates if either spouse simply files for a divorce or dissolution of marriage.
Lee R. Schroeder is an Ohio licensed attorney at Schroeder Law LLC in Putnam County. He limits his practice to business, real estate, estate planning and agriculture issues in northwest Ohio. He can be reached at Lee@LeeSchroeder.com or at 419-523-5523. This article is not intended to serve as legal advice, and specific advice should be sought from the licensed attorney of your choice based upon the specific facts and circumstances that you face.