Everything you need to know about a Power of Attorney

1. What is a power of attorney?

A Power of Attorney is a document between two or more people where a person (the principal) gives another person (their agents) the authority to conduct financial, medical or private matters in the principal’s name. It is a legal document allowing someone else to act on your behalf. It is governed by the provisions of the Power of Attorney Act of 1822.

To give you an understanding of a Power of Attorney (POA) in medical matters, it allows someone to make healthcare decisions on your behalf if you are unable to do so yourself.

Example: Power of Attorney for Managing Finances

Situation: Shruthi needs to travel abroad for a year and wants someone to manage her financial affairs while she is away.

Steps for Creating a Power of Attorney:

1. Choose an Agent: Shruthi decides that Shravan, her brother, will be her agent (the person who will act on her behalf) for one year.
2. Define the Powers: Shruthi specifies what Shravan can do with her finances. This includes:
   • Managing her bank matters and investments.
   • Handling real estate matters.
   • Collecting rent
3. The POA must be executed on stamp paper and notarized. For cases involving immovable properties, it must be stamped and registered.

Setting up a Power of Attorney (POA) with a trusted family member for incapacity is a good idea. This way, if you ever become incapacitated, they can step in and handle your financial and legal matters without any hiccups. It just makes things a lot easier and less stressful for everyone involved.

2. What are the common places where we use POA? 

A power of attorney can be issued for various reasons, such as selling/purchasing a property, operating bank accounts, representing a person before any statutory/government authority, etc. It can be done for a specific time period or without it.

One of our clients, Mr. X, who is in defense services, made a POA authorizing his brother to act on his behalf in Delhi. Recently, he wanted to sell one of his commercial apartments, and he was not able to be there in person. He opted for a Special Power of attorney for Property sale purposes, and his brother acted on his behalf to sign all the property transaction papers. This made his life easy, and all the work happened smoothly without disturbing him from his core area of work. 

So, a POA could be especially useful if you’re in the military or living abroad. You may need someone to repair the property, pay bills, make bank deposits, deal with insurance paperwork, or possibly sell your properties. 

3. Are there different kinds of POA?

There is two types – General and Special POA.

A General Power of Attorney grants broad authority to an agent to manage various aspects of the principal’s affairs, including financial and legal matters. This becomes useful in situations where you are unable to travel if you are a minor or if you are incapacitated. On the other hand, a Special Power of Attorney grants limited authority to the agent for specific tasks or decisions, such as selling a house or handling a particular transaction. The scope of power is the key difference: general is broad and comprehensive, while special is narrow and specific.

4. How to revoke a POA?

The principal must draft a notice of revocation of the POA. The deed must mention the reason for the POA’s revocation. To avoid any future conflicts, it’s better to notarize this document. Once revoked, it is best to destroy the original POA documents and any copies.

5. What are the risks of signing or becoming an agent to a POA?

The risks of an agent can vary depending on the kind of power of attorney and the terms agreed to during the agreement signing.

• Risk to POA writer – Sometimes, either through willful intent or blissful ignorance, POA agents can cause legal and financial chaos. If the terms of the POA are too broad (as with a general durable POA), the agent can buy and sell property at a loss or mismanage a business.

For example, Shravan could mismanage Shruthi’s assets in the above instance.

• Risk to the agent – While most general POAs protect the agent from financial and legal liability upon acting on behalf of the grantor, it is still possible for the agent to make him/herself liable for certain decisions or transactions.

For example, where Shruthi makes Shravan liable for any financial action taken by him.

While the risks associated with writing a POA or becoming an agent for a POA are generally slim, it is advisable to exercise caution by reviewing the document carefully before signing it.

6. What are the other points to take note of regarding POA?

An agent with power of attorney can’t:

• Change a principal’s Will.
• Make decisions on behalf of the principal after their death. (POA ends with the death of the principal.)
• POA is valid only during lifetime. 

Also, don’t confuse a POA with a Will. As per a POA, one can act only as an agent. The Will contains details about legal heirs who should inherit the assets after one’s demise.

The views and opinions expressed in this blog are those of the author. All content provided is for informational purposes only and should not be taken as professional advice.