Powers of Attorney
July 2008
A Power of Attorney is a document that allows someone else to act for you in your business transactions. The person who signs the document and gives someone the power to act for him/her is called the principal. The person to whom the power is given is called the agent or attorney-in-fact.
There are two main types of Powers of Attorney in Minnesota. One is called the short form Power of Attorney. The other is called a common law Power of Attorney. The kind you usually see is the short form Power of Attorney.
Why should I have a Power of Attorney? If you become incapacitated or incompetent, the person appointed can act for you.
If my wife and I own everything in joint tenancy, do I still need one? Probably. Certain assets cannot be held in joint tenancy, for example, retirement accounts, life insurance policies, etc. While retirement accounts name a death beneficiary, what happens if the owner becomes incapacitated and a withdrawal needs to be made? Having a Power of Attorney facilitates this situation.
Does a Power of Attorney continue to be effective if the person making it becomes incapacitated? Yes, most Powers of Attorney are Durable Powers of Attorney, meaning that they continue to be effective on the incapacity of the principal.
What are the people called in a Power of Attorney? The person making the Power of Attorney is called the principal and the person being appointed is the attorney-in-fact.
How should the attorney-in-fact sign documents? The attorney-in-fact should sign as follows:
John Jones
By Sue Smith,
his attorney-in-fact
When does the Power of Attorney terminate? The Power of Attorney terminates when the principal dies or revokes the power.
What kinds of things can an attorney-in-fact do? An attorney-in-fact can do anything listed on the Power of Attorney. The Power of Attorney does not extend to health care decision making.
What duties does the attorney-in-fact have? The attorney-in-fact has a fiduciary duty to the principal. This means that he has a duty to act in the best interests of the principal. He cannot take money of the principal, pay his/her own debts with the principal’s money, etc.
Can a Power of Attorney be revoked? Yes, as long as the principal is competent.
Can an attorney-in-fact make gifts for the principal? Yes, if the Power of Attorney authorizes him/her to do so. If a short form Power of Attorney is used, the maximum gifts that can be given are $12,000 (present figure) per year per person. This amount is tied to an inflation index. If a Common Law Power of Attorney is used, the amount of the gift is unlimited.
What are the qualifications for someone to make a Power of Attorney? The principal must be at least 18 years of age and mentally competent, meaning simply, in this context, understanding that he/she is naming someone else to transact his/her business matters.
What happens if a person does not have a Power of Attorney and becomes incompetent? Sometimes a guardianship or conservatorship is required. This is expensive, time consuming, and requires court involvement.
When does the Power of Attorney become effective? As a general rule, the Power of Attorney becomes effective as soon as it is signed. If the Power of Attorney is to become effective at some later date or upon the happening of an event (such as the incapacity of the principal), the document must state as much. This is known as a springing power, meaning that the power springs ahead to some future date or event. Practitioners prefer non-springing powers because of the hassle of proving someone is incapacitated. A short form Power of Attorney is effective immediately.
What happens when the principal dies? First, the Power of Attorney terminates. The attorney-in-fact cannot pay the funeral bill or any other expenses after the date of death. Second, the attorney-in-fact may be called upon to do an accounting to the personal representative of the estate.
Contact us to discuss a Power of Attorney for you or a family member.