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Power of Attorney: Types, Benefits, and Risks

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Oftentimes, an individual might face certain circumstances in which they are unable to perform their duties regarding property, banking, filing taxes, etc. Such a situation can arise due to various reasons, for example, if a person is ill, or living abroad, or cannot perform the duties due to old age. In this situation, when someone is unable to be physically present for a particular transaction, then the only solution lies in giving their power of action to another person for acting on their behalf. This is when the Power of Attorney (POA) comes to aid.

The Power of Attorney is a legal instrument that allows one individual to give another individual the authority to act on their behalf as their legal representative and to make binding legal and financial decisions on their behalf. In India, it is not mandatory to register a power of attorney, but it is always recommended for improving the authenticity of the agreement. As per legal germs, the person who assigns the authority is known as the ‘principal’, and the person acting on their behalf is called ‘agent’ or ‘attorney-in-fact’.

The Purpose of Power of Attorney

When the principal, due to certain circumstances, is unable to act on a certain transaction where his physical presence is mandatory, that is when power of attorney is created so that he can delegate the authority to someone else. This can be done in several matters relating to real estate and property, finance, tax filing and payments, and various other legal procedures. In most cases, the power of attorney is implemented the very moment the principal delegates the authority to the agent. But in many instances, it might be that the principal can specify a future event when the power of attorney can come into effect. The Powers of Attorney Act of 1882 governs the Power of Attorney in India. 

Types of Power of Attorney

General Power of Attorney: This type of power of attorney actually covers a wide range of powers that are given to the agent. It implies that the principal gives the agent complete general rights to act lawfully on his behalf, with regards to matters of finance, management of property or real estate, taxation, bank transactions, registration, legal disputes, etc. This type of power of attorney is very widely used in the case of the sale and buying of property. It also comes with a lot of risks if the agent is not trustworthy enough. 

Special Power of Attorney: This power of attorney is more limited, and pertains to certain specific tasks and transactions that an agent needs to perform on behalf of the principal. As soon as the agent performs the said transaction, his power or authority is terminated and he has no more authority to act on the principal’s behalf. It is often applied in situations where one wants an agent to appear on their behalf for the registration of a property, etc. 

Durable Power of Attorney: In most cases, the power of attorney comes to an end after the agent completes the task delegated to him or after the principal dies. However, in certain instances, it might be required by the agent to keep acting on the principal’s behalf even after the event of his death. Therefore, the clause of the non-expiration of the agent’s authority even after the death of the principal must be mentioned in the agreement, and that makes it a durable power of attorney. In other cases, the power of attorney is mostly non-durable. 

Medical Power of Attorney: This again is a very commonly-used power of attorney. It gives authority to an agent to take some decisions on the healthcare of the principal when the latter is not able to do so. It comes into action when a presiding physician consents to it and thereby authorizes the agent to make decisions about healthcare for the principal. It can be categorized under the durable power of attorney as well because these decisions need to be made when the principal is no longer in the conscious mind to make the decisions himself. 

Benefits of Having a Power of Attorney

  1. A power of attorney paves an easy way for NRI’s to handle their financial and legal matters when they are unable to be physically present during the proceedings. They can easily delegate the task to someone else. 
  2. It comes in aid to old and senile people when someone else can take care of their bank transactions, tackle legal disputes, and file and payment of taxes when they are unable to be present physically due to illnesses and immobility. 
  3. In case the principal becomes incompetent, a durable power of attorney protects against costly court proceedings. During such a situation, the agent can handle the financial and legal matters of the principal without the court appointing a guardian or conservator for the same. 

Risks of Power of Attorney

When a power of attorney is given to an agent, it implies that the principal is responsible for the decisions and actions of the former. That is why deciding upon the agent is a very critical decision on the principal’s part. The agent should be reliable and trustworthy enough to make decisions and act for the principal’s interest, or else the power of attorney will become a dangerous document. If the power is delegated unwisely, it can be misused. One such step which the principal can take to check for any misuse is by delegating a third party to whom the agent will report their actions, maybe a trusted attorney or accountant. General POAs are often misused, therefore an extra step to check it should surely be taken. Unwise decisions, misinformation, carelessness, and negligence towards details can be some risks that can overpower the benefits. However, with wise decisions and regular checks on the agent’s actions by the principal or a trusted third party, such risks can be avoided, and one can reap the benefits of the agreement. It is a powerful tool that, when drafted correctly and carefully, can be of immense advantage to the principal and make his legal, financial, and other proceedings much easier.