The Power of Attorney

The power of attorney is an important, although often misunderstood, estate planning tool. It can be used to handle many different contingencies, including the sale and purchase of stocks and other securities, the operation of a business, the handling of real estate transactions, or the managing of one's affairs during a period of illness.

A power of attorney (or "attorney in fact") is a written instrument by which one person appoints another as his or her agent and authorizes that person to perform certain specified acts or kinds of acts on his or her behalf. Because this person must act on your behalf, a power of attorney must be given only to those in whom you have the utmost trust and confidence to carry out your wishes. There are few rules governing the narrowness or breadth of the powers that can be conferred.

Except as required by certain statutes, there is no particular form or method of execution required for the creation of a valid power of attorney. Common-law rules for the execution of written instruments should be followed. Since the person who executes a power of attorney (the "principal") will probably not be present when the power is exercised, it is important that the instrument be executed with sufficient authority so as to convince third parties of its validity and to make certain that the principal's exact wishes are carried out. The general rule is that a power of attorney will be strictly construed and limited to performing those functions that are specified in the instrument.

Problems may arise if the instrument is ambiguous or uncertain as to the nature or extent of the powers intended by the principal to be bestowed upon the attorney in fact. The ultimate effect of such imprecision can be costly litigation in which the court attempts to determine the intention of the parties as it existed at the time the power was executed.

Failure to understand how our courts interpret instruments establishing a fiduciary relationship, such as a power of attorney, can result in your intentions not being carried out in the way you wish. For example, the generally accepted rule is that an attorney in fact is under a fiduciary duty to act only so as to benefit the principal. A gift of the principal's property to others may be made only if (1) such power is expressly conferred, (2) such power arises as a necessary implication from the conferred powers, or (3) such power is clearly intended by the parties, based on the surrounding facts and circumstances.

While a power of attorney can be a vital part of estate planning, it is important to exercise foresight at the time of execution. The failure to spell out accurately an attorney in fact's powers could frustrate the wishes of the person who executes a power of attorney or could result in costly litigation.

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