A power of attorney is one of the most used estate planning tools. At some point in your life, you will likely execute a Power of Attorney and/or be named as an Agent under someone else’s Power of Attorney. Despite how common these documents are, several misconceptions remain about the power granted when you execute a Power of Attorney. To help clear some of those up, the Indianapolis estate planning attorneys at Frank & Kraft explain the limits to an Agent’s authority under a General Power of Attorney.
Power of Attorney Basics – What Is a Power of Attorney?
At its most basic, a Power of Attorney is a legal document that allows you (referred to as the “Principal”) to grant another person (the “Agent”) the authority to act on your behalf in legal matters and transactions. The type and extent of the legal authority you grant to an Agent depends on the type of POA you execute. Failing to understand the extent of the authority granted in a POA is a common, and potentially very dangerous, estate planning mistake.
General vs. Limited Power of Attorney
A POA can be either general or limited. A general POA grants your Agent almost unlimited power to act on your behalf. This means that your Agent may be able to do things such as withdraw funds from your financial accounts, sell property and assets owned by you, and even enter into contracts in your name. Although the law places some limits on the actions of an Agent with a general POA, you should never give someone a general POA if you have any doubt about their trustworthiness.
A limited POA only grants to your Agent the limited, and specific, authority enumerated in the POA. For example, you might grant an Agent the specific power of attorney to act on your behalf during the sale of your vehicle while you are out of the state on a business trip. A limited POA is also frequently used by the parents of a minor child to grant a caregiver the authority to consent to medical care for a child in the event it is needed on an emergency basis.
Is an Agent’s Authority Unlimited under a General Power of Attorney?
Although you do grant your Agent a considerable amount of power when you execute a General Power of Attorney, it isn’t necessarily unlimited power. In the State of Indiana, the Indiana Power of Attorney Act governs POAs, including the authority granted to an Agent. One important consideration when deciding how much power to grant is whether or not you want your POA to be durable. Historically, the authority granted to an Agent automatically terminated upon the death or incapacity of the Principal. The problem was that the possibility of becoming incapacitated is precisely why many people want to grant someone POA. People frequently create a POA specifically to ensure that their Agent named in the POA has the authority to act on their behalf if they suffer a period of incapacity. If the POA terminates upon the incapacity of the Principal, however, it cannot help in the event of the Principal’s incapacity. To resolve this problem, the concept of a “durable” POA evolved. When a POA is made durable it simply means that the Agent’s authority survives the incapacity of the Principal.
In addition, there are some restrictions you may wish to include when you execute a general POA. Conversely, you may wish to explicitly grant these powers to your Agent. The power to make gifts is one of those. Because gifts can have estate planning ramifications, it is one power that is often excluded from those granted in a general POA. Another important power you may wish to pay attention to is the power to consent or reject medical treatment. Most states, including Indiana, have a special type of Power of Attorney dedicated solely to designating an Agent for health care. For example, if you are incapacitated at some point and suffering a terminal illness, this person would make end-of-life healthcare decisions for you.
While not unlimited, the authority granted in a general Power of Attorney is considerable. Or that reason, it is in your best interest to consult with your estate planning attorney if you are contemplating the execution of a General POA.
Contact Indianapolis Estate Planning Attorneys
For more information, please download our FREE estate planning worksheet. If you have additional questions or concerns about creating, executing, or using a Power of Attorney, contact the experienced Indianapolis estate planning attorneys at Frank & Kraft by calling (317) 684-1100 to schedule an appointment.
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