Business, Legal & Accounting Glossary
Power of attorney is a legal document (but not a court form) which gives one person the power to act for another person. Power of attorney can give limited or broad legal authority to someone to act for the benefit of another person, who is called the principal. Power of attorney is often used when a principal becomes sick, incapacitated or mentally incompetent and is unable to manage their finances or legal affairs.
The power of attorney document is created by the “principal.” The principal gives the power to someone else to act on their behalf who is called the attorney-in-fact, although they do not have to be a lawyer, only a competent adult who is 18 years or older. The power of attorney can be designated for a specific time or it can be cancelled by the principal.
A power of attorney is a legal instrument used to delegate authority. Under the power of attorney, a principal delegates authority to a trusted agent. While the power of attorney is in effect, the agent then has a fiduciary duty to the principal. The exact scope of authority is spelt out in the power of attorney document. Three types of power of attorney are known as durable, springing, and nondurable. A durable power of attorney is effective once executed and until revoked. A springing power of attorney goes into effect at some defined future time. For example, medical power of attorney may come into effect as soon as a doctor certifies that the principal is incapacitated, enabling the agent to make medical care decisions. A nondurable power of attorney is finite, thus suitable for a specific purpose. For instance, many principals grant their real estate attorney nondurable power of attorney to handle a specific transaction closing. In New York, a power of attorney used in a real estate transaction must be filed with the County Clerk.
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This glossary post was last updated: 31st March, 2020