In order to have legal capacity to make a financial power of attorney, a principal must understand the nature of the authority given to his/her agent, understand what assets would be subject to the power of attorney, and understand the Notice provision in the financial power of attorney. This “notice” provision provides warning to the principal that the power of attorney is a very powerful document which allows the agent very broad powers to handle the principal’s financial affairs.
What Are Some Powers That Can Be Given in a Financial Power of Attorney?
One of the most important powers given in a financial power of attorney is the power to buy or sell property (real or personal) on behalf of the principal. An agent can also enter into contracts (including leases or mortgages) on behalf of the principal and can also make investments on behalf of the principal. The agent also had broad powers with regard to bank accounts and loans. He/she can borrow money on behalf of the principal, as well as sign checks, open/close bank accounts in the principal’s name. These are just some of the powers can be included in a financial power of attorney.
Another important facet of a financial power of attorney that should be addressed in these documents is the agent’s power to make gifts on behalf of the principal. Unless stated otherwise, the statute provides for “unlimited gifts” so long as the agent’s authority to make gifts on behalf of the Principal is specifically defined in the document. Many times, a financial power of attorney will provide the agent with power to make “limited gifts” on the principal’s behalf, and can further specify that the gifts given shall be in accordance with the principal’s established pattern of giving.
These important documents come in two forms: springing or durable. Springing is used less frequently and only takes effect upon the incapacitation of the principal. This provides an extra level of security against fraud on the part of the agent. A durable power of attorney is much more common in Pennsylvania and provides the agent with the power to act upon execution and remains in effect even if the principal becomes incapacitated.
A power of attorney can be revoked by Notice to the Agent of the Principal’s desire to terminate the agency, the death of the Principal, or, if the POA is not durable, the incapacity of the principal.
Given the nature of the powers given in this legal document, it is important to obtain the advice of an experienced attorney when seeking to draft one of these important documents!