A power of attorney is an authorization for one person—the attorney in fact—to act on behalf of another person—the principal. A power of attorney may be general, meaning that the attorney in fact has broad powers to act on the principal’s behalf in a wide array of circumstances, or limited, meaning that the attorney in fact may only act on behalf of the principal in narrowly defined circumstances such as at a specific real estate closing.
As an aside, an attorney in fact is distinguishable from an attorney at law, which is what is commonly meant by the term “attorney.” Unlike an attorney at law, an attorney in fact does not have to be a lawyer.
Drafting a Power of Attorney
There is great flexibility in drafting the scope and parameters of a power of attorney. Both start and expiration dates may be incorporated into the document, and provisions for contingencies—such as the incapacity of the principal—may be included as well. As a general rule, an attorney in fact does not have the authority to give gifts on behalf of the principal unless specifically authorized to do so.
To protect against fraud, a power of attorney has the same execution requirements as a will, including the requirement that it be executed before two independent witnesses. The attorney in fact is not an independent witness and therefore cannot perform this role.
A power of attorney provides another person with extraordinary abilities to act on your behalf and so must only be provided after very careful consideration and then only to those whom you would trust with your life. A colleague of mine in the JAG Corps calls it the “most dangerous legal document known to man.” When you execute this document, you provide another person the ability to act in your place, meaning he or she can sell your property and even take out loans in your name.
Because of these great risks, I generally advise against providing a general power of attorney to anyone but a spouse, and sometimes not even then. Most purposes for which such a document is desired can be accomplished through alternative, less risky, means, such as joint bank accounts or very limited powers of attorney.
It is important to recognize that a joint holder of your bank account can bring you down to zero, but your attorney in fact can bring you into the negative. In fact, stories of servicemen returning home from overseas to find an empty bank account and mountains of new debt are not uncommon. You should carefully consider this before providing anyone with a power of attorney, so that you can understand the risks and enter into the situation with eyes wide open.