What is a Power of Attorney?

October 4, 2016

A Power of Attorney is a legal document by which you can appoint and authorise another person (usually a trusted friend, family member, colleague or adviser) to act on your behalf and to legally bind you in that respect. While most people fail to see the importance of having a Power of Attorney, there are many compelling reasons why they should be used. Suppose, for example that:

  1. you are going to be out of the country for an extended period, and need someone trustworthy to manage your business affairs while you’re away;
  2. you wish to acquire property in another state, and you need to authorise a local to sign and lodge documents on your behalf;
  3. you want someone to manage your real estate for you; or
  4. you’re getting a little bit older and wish to appoint someone you know and trust to make healthcare decisions on your behalf should the day come when you are unable to do so yourself.

A Power of Attorney can be used to facilitate your needs in each of these scenarios. The person giving the Power of Attorney is referred to as the ‘donor’, ‘grantor’ or ‘principal’, while the recipient is called the ‘agent’, ‘attorney-in-fact’ or just plain ‘attorney’ .

Ordinary and Durable Power of Attorney

Powers of Attorney can generally be categorised as either ordinary or durable. (Note that both kinds come to an end when the principal dies.)

An ordinary Power of Attorney is only valid for as long as the principal is capable of making decisions and acting for him or herself. If the principal dies or becomes mentally incapacitated, the Power of Attorney is deemed to have been invalidated and immediately ceases to have effect. As a result, the family of the principal may be left in a position whereby they are powerless to deal with the principal’s affairs unless they seek court intervention.

To be recognised as durable, a Power of Attorney should contain a clear and unambiguous statement to the effect that it is intended to be ‘durable’. It should also state that ‘this Power of Attorney shall not be affected by the subsequent incapacity of the principal’ or ‘this Power of Attorney shall become effective upon the incapacity of the principal’, as the case may be, or else use similar words that show it was intended to be valid even after the principal became incapacitated.

Should I Make a Power of Attorney

The simple answer is yes! If you have an income or property of any description it’s a good idea to execute a durable Power of Attorney especially if you believe that health problems may make it impossible for you to handle your personal financial affairs in the future. Even if you have no impending health issues, you should still have a durable Power of Attorney in case you, because of an accident or sudden illness, ever become unable to make decisions for yourself.

Have you ever considered what would happen if:-

  1. you were involved in a serious accident, which left you in a coma. What would your family do, in both the short and the longer term, if they had no power to access your bank accounts or take care of your business affairs?
  2. you began to have blackouts, and act in an out-of-character fashion. You’re diagnosed as having a brain tumour, and before long you lose the capacity to function normally, or make rational decisions. Will your property, financial and other affairs be stuck in limbo?

In both of these cases, a durable Power of Attorney would be of great assistance to you. During your period of incapacity, your agent would be in a position to manage the many practical and financial tasks that may arise. For example, bills will need to be paid, bank deposits will need to be made, and someone will need to handle insurance and benefits paperwork, …..etc.

Many other matters may need attention as well, ranging from handling property repairs and lettings to managing investments or even a small business. In most cases, a durable general Power of Attorney is the best way to take care of all these and other similar tasks.

In addition, by preparing a Power of Attorney now, you can ensure that a person of your choosing will manage your property, assets and affairs rather than a court appointed conservator.

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