Powers of Attorney - Advantages and Disadvantages

A power of attorney is a document in which an individual, known as the "principal", authorizes another individual, referred to as the "attorney-in-fact" or "agent", to act on their behalf in handling certain matters during their lifetime.

The types of powers of attorney vary depending upon how much responsibility is granted to the agent, and when their power to act for the principal begins and ends.

A "limited" power of attorney grants an agent the authority to act for the principal in a particular matter or during a specific time period. For example, a limited power of attorney could grant an agent the authority to sign real estate documents for a particular piece of property on behalf of the principal. With a limited power of attorney, an agent would not have any more authority to act for the principal than what is stated in the document.

A general power of attorney usually grants an agent broader authority to act on behalf of the principal. For example, a general power of attorney can grant an agent the authority to endorse checks and other instruments payable to the principal, pay bills and borrow money on behalf of the principal, and provide the agent with access to the principal's safe deposit box.

Because powers of attorney are strictly construed in Maryland, it is important that a power of attorney be specific as to the powers a principal is granting to an agent. Therefore, prior to having a power of attorney prepared, you should carefully consider what powers you wish to grant your agent, and have those powers specifically referenced in the document. More importantly, given the authority granted to an agent under a power of attorney, you should fully trust an individual before appointing them as your agent.

A power of attorney should specify when the authority granted to the agent becomes effective. Generally there are "springing" powers of attorney and "durable" powers of attorney. Unlike a durable power of attorney, which usually takes effect when the document is signed, a springing power of attorney provides that an agent's authority to act for the principal is not effective until the happening of an event.

For example, a springing power of attorney could state that an agent's authority to act on behalf of a principal is only effective upon the disability of the principal; thus an agent would not have authority to act for the principal until the principal is determined to be disabled. Although a springing power of attorney would prohibit an agent from acting on behalf of a principal prior to the specified event, one disadvantage of this limitation is that an individual or institution to whom such a power of attorney is presented may not be satisfied that the specified event has occurred and may refuse to recognize the agent's authority to act for the principal.

Maryland also recognizes a durable power of attorney. A durable power of attorney states that the power of attorney document is not terminated or in any way affected by the subsequent disability, incompetence or incapacity of the principal. Therefore, if a principal becomes incompetent after signing a durable power of attorney, their incompetence does not revoke the power of attorney and the agent can continue to act on their behalf.

Because a durable power of attorney does not terminate upon the incapacity of a principal, they are useful for disability planning. However, since most durable powers of attorney are effective when signed by the principal, it is important that the principal completely trust the agent appointed, as that individual is in a position to easily perpetrate a fraud upon the principal.

In summary, a power of attorney can provide you with peace of mind knowing that someone you have chosen will handle your personal affairs in the event you are unable to do so. However, prior to appointing someone as your agent it is important that you thoroughly trust that individual, and that the individual designated accepts the duties and fiduciary responsibilities of an agent.

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